Exhibit 14-6
Jones Corporation issued $400,000 of its 8%, 10-year bonds, dated January 1, 2016, at face value plus accrued interest on May 1, 2016. Interest is paid on January 1 and July 1. Jones uses the most common method to record the sale of the bonds between interest payment periods.
-Refer to Exhibit 14-6. The entry to record the payment of interest on July 1, 2016, would include a

Question

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DThe interest payment on July 1, 2016, would cover the interest for the period from January 1, 2016, to July 1, 2016. Since the bonds have an 8% annual interest rate on a $400,000 principal, the semi-annual interest payment would be $400,000 * 8% * (6/12) = $16,000. Therefore, Cash would be credited for $16,000 to reflect the outflow of cash for the interest payment. Additionally, Bond Interest Payable would be debited for $16,000 to remove the liability for the interest that has now been paid.

Exhibit 14-6 Jones Corporation Issued $400,000 of Its 8%, 10-Year Bonds, Dated