Answered: On July 1, 2020, West Company purchased…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 16E

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On July 1, 2020, West Company purchased for cash, three $10,000 bonds of North Corporation at a market rate of 4%. 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.

d. Record the receipt of interest on January 1, 2021.

e. Record the sale of all of the bonds on January 2, 2021, for $33,200.

f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments.

Note: List multiple debits or credits (when applicable) in alphabetical order.

Note: Round each amount to the nearest whole dollar.

Note: If 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).

On July 1, 2020, West Company purchased for cash, three $10,000 bonds of North Corporation at a market rate of 4%. 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 $33,200.
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: Round each amount to the nearest whole dollar.
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.
b.
Jul. 1, 2020
C.
Dec. 31, 2020
To accrue interest revenue
Dec. 31, 2020
To record unrealized gain or loss

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