Question

The A Company purchased bonds that had a total face value of $500,000 for $450,000 on August 1, 20X9. The bonds pay installments of the 6 percent annual interest on May 1 and November 1. The A Company's journal entry to accrue bond interest on December 31, 20X9, would involve a debit to _______ and a credit to__________ of $5,000?

1) Bond Interest Receivable; Cash
2) Bond Interest Receivable; Bond Interest Income
3) Debt Investments; Bond Interest Income
4) Bond Interest Receivable; Debt Investments

Answer 1

The correct journal entry for A Company to accrue bond interest on December 31, 20X9, is to debit Bond Interest Receivable and credit Bond Interest Income for $5,000. The correct option is 2)

Step-by-step explanation:

The journal entry to accrue bond interest for The A Company on December 31, 20X9, would involve a debit to Bond Interest Receivable and a credit to Bond Interest Income for $5,000. This is because The A Company would have earned interest from the time it purchased the bonds up to December 31, even though the interest will not be paid until the next installment date, which is May 1. Accordingly, the correct option is 2) Bond Interest Receivable; Bond Interest Income. The amount of $5,000 is calculated based on the face value of the bonds ($500,000), the annual interest rate (6%), and the portion of the year the interest has been accruing since the last interest payment on November 1 (two months).