Duner Company should record $2,000 as accrued interest expense for the period of October 1 to December 31, 20X1, for the $100,000, 8% interest newly issued bonds.
On December 31, 20X1, Duner Company should record the accrued interest expense on the newly issued bonds. Since the company purchased $100,000 of 8% annual interest bonds and interest is payable semi-annually on March 30 and September 30, we need to calculate the interest for the period October 1 to December 31, 20X1. This involves calculating the interest for 3 months (or a quarter of a year).
The annual interest on the bonds is 8% of $100,000, which equals $8,000 per year. As interest is paid twice a year, each payment would be $4,000. However, for the 3 months from October 1 to December 31, Duner will accrue a quarter of that semi-annual payment. Therefore, the amount to be recorded as interest expense on December 31, 20X1, is $2,000 ($8,000 annual interest / 4 quarters).