a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Stated Interest Market Interest Discount Amortization Bond Amortized Cost Jul. 1, 2020 Answer Jan. 1, 2021 Answer Answer Answer Answer Jul. 1, 2021 Answer Answer Answer Answer b. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c. Record the adjusting entry by West Company on December 31, 2020. The fair value of the bonds at December 31, 2020, was $153,900.
Recording Entries for HTM Debt Securities— Effective Interest Method
On July 1, 2020, West Company purchased for cash, fifteen $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 held-to-maturity securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium.
Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
| Date | Stated Interest |
Market Interest |
Discount Amortization |
Bond Amortized Cost |
|---|---|---|---|---|
| Jul. 1, 2020 | Answer | |||
| Jan. 1, 2021 | Answer | Answer | Answer | Answer |
| Jul. 1, 2021 | Answer | Answer | Answer | Answer |
b. Record the entry for the purchase of the bonds by West Company on July 1, 2020.
c. Record the
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: If a line in a
| Date | Account Name | Dr. | Cr. | |
|---|---|---|---|---|
| b. | Jul. 1, 2020 | |||
| c. | Dec. 31, 2020 | |||
d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.
Note: List accounts in alphabetical order.
| Income Statement | 2020 |
|---|---|
| Other Revenues and Gains | |
| $ |
| Balance Sheet | December 31, 2020 |
|---|---|
| Assets | |
| $ | |
| $ |
e. Record the receipt of interest on January 1, 2021.
f. After the interest payment on July 1, 2021, two of the bonds were sold for $36,670 cash. Provide the required entries on July 1, 2021.
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
| Date | Account Name | Dr. | Cr. | |
|---|---|---|---|---|
| e. | Jan. 1, 2021 | |||
| f. | Jul. 1, 2021 | |||
| To record receipt of interest. | ||||
| Jul. 1, 2021 | ||||
| To record sale of bonds. |
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