Recording Entries for AFS Debt Securities Effective Interest Method Adjust FVA at Sale and Year-End On July 1, 2020, West Company purchased for cash, six $10,000 bonds of North Corporation to yield 10%. The bonds pay 9% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as AFS securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium. Amortization Schedule Journal Entries and FS Presentation for 2020 Journal Entries for 2021 a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method. Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Stated Market Interest Interest Discount Bond Amortization Amortized Cost $ 58,477 July 1, 2020 Jan. 1, 2021 $ July 1, 2021 2,700 $ 2,924 $ 224 58,701 2,700 2,935 235 58,936 5. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c Record the adjusting entries by West Company on December 31, 2020, to accrue interest revenue and adjust the investment to fair value. The fair value of the bands at December 31, 2020, was $64,800. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Cr. Dr. 58,477 0 58.477 2.700 224 Date Account Name July 1, 2020 Investment in AFS Securities Cash c Dec 31, 2020 Interest Receivable Investment in AFS Securities Interest Revenue To accrue interest revenue Dec. 31, 2020 Fair Value Adjustment-APS Unrealized Gain or Loss-CCI In adjust investment to fair value 2.924 6.099 d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: List accounts in alphabetical order. Note: Do not use a negative sign for an account with a normal balance. 2020 Income Statement Other revenues and Gains Interest Revenue Balance Sheet, December 31 2,924 2020 2,700 64,800 Interest Receivable Investment in AFS Securities Stockholders' Equity Accumulated Other Comprehensive Income 3 6,099 Cr. e. Record the receipt of interest on January 1, 2021, Date Account Name Jan 1, 2021 Cash Interest Receivable Dr. 2.700 0 2.700 f. After the interest receipt on July 1, 2021, two of the bonds were sold for $15,440 cash. (1) Record the receipt of interest on July 1, 2021. (2) Record the entry to adjust the two bonds to fair value (FV-OCI). (3) Record the sale, eliminating the associated Fair Value Adjustment account balance. For simplicity, ignore any fair value adjustments in 2021 related to the six remaining bonds. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Dr. Cr. OX * x 0 x a OX Date Account Name (1) July 1, 2021 Cash Interest Receivable Cash To record receipt of interest (2) July 1, 2021 Cash Cash . To adjust to fair value investments to be sold. (3) July 1, 2021 Fair Value Adjustment--TS Investment in TS Investment in TS Interest Receivable Interest Receivable To record sale of investments. OX OX x
