Exhibit 14-7 On January 1, 2010, Bubbles, Inc.sold $200, 000 of its 12% five-year bonds to yield 10%.Interest is paid each January 1 and July 1, and effective interest amortization is used.On May 1, 2012, Bubbles, retired $100, 000 of the bonds at 104.The book value of the bonds on December 31, 2011, was $212, 926.
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Refer to Exhibit 14-7.Which of the following would be included in the interest accrual entry?

Question

Quizplus · Accepted Answer

The interest accrual entry would include a debit to Bond Interest Expense which represents the interest expense incurred during the period. Option A is incorrect because it suggests a credit to Interest Payable which would only be recorded if interest was not previously paid or accrues. Option C is incorrect because it suggests a credit to Discount on Bonds Payable which would only be recorded if there was a discount on the bonds at issuance. Option D is incorrect because it suggests a debit to Premium on Bonds Payable which would only be recorded if there was a premium on the bonds at issuance.

Exhibit 14-7 on January 1, 2010, Bubbles, Inc