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	Market	Premium	Bond
	Interest	Interest	Amortization	Amortized Cost
Jul. 1, Year 1				Answer
Jan. 1, Year 2	Answer	Answer	Answer	Answer
Jul. 1, Year 2	Answer	Answer	Answer	Answer
Jan. 1, Year 3	Answer	Answer	Answer	Answer
Jul. 1, Year 3	Answer	Answer	Answer	Answer
Jan. 1, Year 4	Answer	Answer	Answer	Answer
Jul. 1, Year 4	Answer	Answer	Answer	Answer

b. Record the entry for the purchase of the bonds by West Company on July 1.

Date	Account Name	Debit	Credit
Jul. 1, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACredit		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACredit		Answer
	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.

Date	Account Name	Debit	Credit
Dec. 31, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	To accrue interest revenue.
Dec. 31, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	To record unrealized gain or loss.

d. Record the receipt of interest on January 1, of the following year.

Date	Account Name	Dr.	Cr.
Jan. 1, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	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	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	To adjust FVA account.

Date	Account Name	Dr.	Cr.
Jan. 2, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available		Answer
	To record the sale of investments.