Question

Leonard Technologies invests $54,000 to acquire $54,000 face value, 10%, five-year corporate bonds on December 31, 2014 . The bonds will mature on December 31, 2019. The bonds pay interest semiannually on December 31 and June 30 every year until maturity. Assume Leonard Technologies uses a calendar year. Based on the information provided, which of the following will be included in the journal entry for the transaction on December 31, 2018?

A. a debit to Interest Revenue for $5,400
B. a credit to Interest Revenue for $2,700
C. a debit to Interest Revenue for $2,700
D. a credit to Interest Revenue for $5,400

Answer 1

B. a credit to Interest Revenue for $2700

Step-by-step explanation:

The interest earned from Bonds receivable is recorded as an interest revenue. The 10% rate of interest given is an annual rate and as the interest is paid semi annually so the semi annual interest payment received is of,

Semi annual interest revenue = 54000 * 0.1 * 6/12 = $2700

Thus, on 31 December 2018, Leonard will record a debit to the cash for $2700 and a credit to the interest revenue for $2700.