On January 1, 2017, Pale Company purchased as an investment a $900, 8% bond for $680. Pale plans to hold the bond until the maturity date on January 1, 2027. The bond pays interest on January 1 and July 1. The company's fiscal year ends on December 31 and it uses the straight-line amortization method for discounts and premiums. The entries on December 31, 2017 would include a:

Question

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The bond pays interest semi-annually, so the interest for one period is $900 x 8% x 1/2 = $36. Since the interest is paid on January 1 and July 1, on December 31, 2017, the interest for the second half of the year (July 1 to December 31) would be accrued as Interest Receivable.

On January 1, 2017, Pale Company Purchased as an Investment