Question

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must:_______.

a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.
b. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.
c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date.
d. notify the issuer and request that a special payment be made for the appropriate portion of the interest period.

Answer 1

make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.

Step-by-step explanation:

Adjusting entries are used at the end of an accounting period to assign income and expenses that has accrued.

In this instance when the interest reciept day comes after accounting period we need to recognise the amount of interest earned so far.

The amount accrued since last interest payment date is calculated.

This amount has been earned so it should be recognised as revenue. To do this we debit interest receivable and credit interest revenue.