On July 1 of Year 1, West Company purchased for cash, 16, $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 in three years on July 1. The bonds are classified as trading securities. West Company's annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method. b. Record the entry for the purchase of the bonds by West Company on July 1 of Year 1. c. Record the adjusting entries by West Company on December 31 of Year 1 to accrue interest revenue and record the unrealized gain or loss. The fair value of the bonds on December 31 of Year 1 was $166,000.
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On July 1 of Year 1, West Company purchased for cash, 16, $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 in three years on July 1. The bonds are classified as trading securities. West Company's annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums.
a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method.
b. Record the entry for the purchase of the bonds by West Company on July 1 of Year 1.
c. Record the
d. Record the receipt of interest on January 1 of Year 2.
e. Record the sale of all of the bonds on January 2 of Year 2 for $166,100, eliminating the related Fair Value Adjustment account balance. Prior to recording the sale, adjust the investment to fair value.
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