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 Discount Bond Interest Interest Amortization Amortized Cost $ 0 0 $ 0 $ 0 0 July 1, 2020 Jan. 1, 2021 $ July 1, 2021 0 0 0 Amortization Schedule Journal Entries and FS Presentation for 2020 Journal Entries for 2021 b. 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 0 0 5,400 239 a . Date Account Name 5. July 1, 2020 Investment in HTM Securities Cash c. Dec 31, 2020 Interest Receivable Dividend Revenue Investment Incarne To accrue interest raven Dec 31, 2020 Investment Income Unrealized Gain or Loss-Income To adjust investment to fal' value . 0 5.729 + 7,075 0 7,075 U 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 Balance Sheet, December 31 2020 Assets Stockholders' Equity e. Record the receipt of interest on January 1, 2021. Date Account Name Jan. 1, 2021 Dr. Cr. 0 0 0 0 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 Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Account Name Dr. Cr. Date (1) July 1, 2021 0 0 0 + 0 To record receipt of interest (2) July 1, 2021 + 0 0 To adjust to fair value investments to be sold. + (3) July 1, 2021 0 0 0 0 0 0 0 To record sale of investments
