Final answer:
For the first month ending January 31, 2015, the correct journal entry to record accrued interest for Forever 21's issued bonds would be a debit to Interest Expense for $500 and a credit to Interest Payable for $500, reflecting the accrued but unpaid interest amount.
Step-by-step explanation:
Journal Entry for the First Month Ended January 31, 2015
The question relates to the accounting treatment of interest on bonds issued by Forever 21. Since the bonds were issued on January 1, 2015, and the interest is payable annually on December 31, the interest for the month of January would have accrued but not yet been paid out. For the month of January, the interest expense can be calculated on a monthly basis by taking the annual interest rate and dividing it by the number of months in a year. The calculation for the monthly interest expense is as follows: $100,000 (face value) × 6% (annual rate) × (1/12) (for one month), which equals $500. Therefore, the journal entry for the first month ended January 31, 2015, would be:
Debit Interest Expense $500
Credit Interest Payable $500
There is no cash involved until the interest is actually paid out at the end of the year. Hence, Option A and Option B are incorrect as they incorrectly credit Bonds Payable instead of Interest Payable and debit Cash, which is not yet paid. Option D is incorrect because it pertains to the full annual interest expense rather than the monthly accrued amount. The correct answer, as per proper accrual accounting principles, is to recognize the interest expense that accrues each month leading up to the payment date.