Question

Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2017 for $60,000. Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2017 would include a credit to Select one: a. Interest Receivable for $4,800. b. Interest Revenue for $2,400. c. Interest Receivable for $2,400. d. Interest Revenue for $4,800. e. Interest Expense for $4,800.

Answer 1

b. Interest Revenue for $2,400

Step-by-step explanation:

On December 31

The journal entry is as follows

Interest receivable A/c Dr $2,400

To Interest revenue A/c $2,400

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $60,000 × 8% × ( 6 months ÷ 12 months)

= $2,400

The 6 months is calculated from July 1 to December 31

The $60,000 is come from

= 60 × $1,000