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On July 1 of the current year, West Company purchased for cash, 8, $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 in three years on July 1. 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. 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 a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method. Date Stated Interest Market Premium Bond Interest Amortization Amortized Cost $ 0 X 0x 3,502 X $ 0 X 0X X 0 x 0 x X 0 X Jul. 1, Year 1 Jan. 1, Year 2 $ Jul. 1, Year 2 Jan. 1, Year 3 Jul. 1, Year 3 Jan. 1, Year 4 Jul. 1, Year 4 0 X 0 x OX 3,000 X $ 3,000 X 3,000 x 3,000 x 3,000 x 3,000 X 0X 0 X 0 X OX 0 X 0 x 0 x 0 x OX b. Record the entry for the purchase of the bonds by West Company on July 1. Date Jul. 1, Year 1 Account Name Investment in AFS Securities Cash Debit 80,000 0 Credit 0 x 80,000 x To record investment purchase, c. Record the adjusting entries by West Company on December 31 to accrue interest revenue and record the unrealized gain or loss. The fair value of the bonds on that date was $83,000. Credit Debit 3,000 0 X 502.56 0X Date Account Name Dec. 31, Year 1 Investment in HTM Securities Dividend Revenue Interest Revenue To accrue interest revenue. Dec. 31, Year 1 No list available 0 3,502.56 x 0 0 X 0 0 x To record unrealized gain or loss. d. Record the receipt of interest on January 1, of the following year. Dr. Cr. Date Account Name Jan. 1, Year 2 Cash Interest Revenue 0 0 X 0 0 X To record the receipt of interest. e. Assume that all of the bonds were sold on January 2 for $83,000, after the receipt of interest in part d. Record the entry for the sale of the bonds, eliminating the associated Fair Value Adjustment account balance. Prior to recording the sale, adjust the investment to fair value. Note: If a line in a journal entry isn't required for the transaction, select "N/A-Debit" and/or "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dr. Cr. Jan. 2, Year 2 0 0 X 0 0X To adjust FVA account. Date Account Name Dr. Cr. Jan. 2, Year 2 0X o o o 0 X 0 OX To record the sale of investments

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