Entries for TS: Effective Interest Method
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.
Note: When answering the following questions, round answers to the nearest whole dollar.
Amortization Schedule Journal Entries in Year 1
Journal Entries in Year 2
d. Record the receipt of interest on January 1 of Year 2.
Date
Account Name
Jan. 1, Year 2
Dr.
Cr.
0
0
To record the receipt of interest.
e. Record the sale of all of the bonds on January 2 of Year 2 for $166,100.
Date
Jan. 2, Year 2
Account Name
To record the sale of investments.
Dr.
Cr.
0
0
0
0
f. Record the adjustment to the Fair Value Adjustment account on December 31 of Year 2, assuming no additional TS investments.
Date
Account Name
Dec. 31, Year 2
To adjust FVA account.
Dr.
Cr.
