ecording Entries for TS—Effective Interest Method Adjust FVA at Sale and Year-End On July 1, 2020, West Company purchased for cash, eighteen $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. Amortization Schedule Journal Entries in 2020 (PART 2) Journal Entries in 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 record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $190,900. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Date Account Name Dr. Cr. b. Jul. 1, 2020 c. Dec. 31, 2020 Dec. 31, 2020 To record unrealized gain or loss
ecording Entries for TS—Effective Interest Method Adjust FVA at Sale and Year-End On July 1, 2020, West Company purchased for cash, eighteen $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. Amortization Schedule Journal Entries in 2020 (PART 2) Journal Entries in 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 record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $190,900. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Date Account Name Dr. Cr. b. Jul. 1, 2020 c. Dec. 31, 2020 Dec. 31, 2020 To record unrealized gain or loss
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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PART 2
Recording Entries for TS—Effective Interest Method
Adjust FVA at Sale and Year-End
On July 1, 2020, West Company purchased for cash, eighteen $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.
- Amortization Schedule
Journal Entries in 2020 (PART 2)- Journal Entries in 2021
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: Round each amount to the nearest whole dollar.
| Date | Account Name | Dr. | Cr. | |
|---|---|---|---|---|
| b. | Jul. 1, 2020 | |||
| c. | Dec. 31, 2020 | |||
| Dec. 31, 2020 | ||||
| To record unrealized gain or loss |
Transcribed Image Text:**Recording Entries for TS—Effective Interest Method**
**Adjust FVA at Sale and Year-End**
On July 1, 2020, West Company purchased for cash, eighteen $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.
**Amortization Schedule | Journal Entries in 2020 | Journal Entries in 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 record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $190,900.
**Note:** List multiple debits or credits (when applicable) in alphabetical order.
**Note:** Round each amount to the nearest whole dollar.
| Date | Account Name | Dr. | Cr. |
|--------------|----------------------------------------|-----|-----|
| b. Jul 1, 2020 | | | |
| c. Dec 31, 2020 | To accrue interest revenue | | |
| Dec 31, 2020 | To record unrealized gain or loss | | |
The information outlines the process of accounting for trading securities using the effective interest method, specifically related to the purchase and year-end adjustments for bond investments. Key components include recording the purchase price, accruing interest, and recognizing any changes in fair value.
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