Landmark buys $300,000 of Schroeter Company's 8%,5-year bonds payable at par value on September 1.Interest payments are made semiannually on March 1 and September 1.The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Question

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The bond has an 8% interest rate and a par value of $300,000, which means the annual interest payment is $24,000 ($300,000 x 8%). Since the interest is paid semiannually, each payment will be $12,000 ($24,000/2).
Landmark bought the bond on September 1, so it will only receive one interest payment of $12,000 on that date. However, at year-end December 31, three months have passed since the last interest payment on September 1, so Landmark has earned $8,000 ($12,000 x 3/6) in interest that has not been received yet. Therefore, Landmark should debit Interest Receivable for $8,000 and credit Interest Revenue for $8,000 to record the accrual of interest earned but not yet received.

Landmark Buys $300,000 of Schroeter Company's 8%,5-Year Bonds Payable at Par