Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. Assume Community pays interest on January 1. The journal entry at December 31, 2014 would include a credit to

Question

Quizplus · Accepted Answer

Since Community pays interest on January 1st, Bay Company would have earned interest revenue for the portion of the year that they owned the bonds (January 1st to December 31st).

Calculation: 
60 bonds x $1,000 face value x 8% interest rate = $48,000 total interest paid by Community 
$48,000 x (12/12) = $4,800 interest earned by Bay Company in 2014

Therefore, the journal entry at December 31, 2014 would include a credit to Interest Revenue for $4,800.

Bay Company Acquires 60, 8%, 5 Year, $1,000 Community Bonds