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 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2014 would include a credit to

Question

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Since the company acquired the bonds on January 1, it would receive 6 months of interest on July 1 and another 6 months of interest on January 1 of the following year. Therefore, at December 31, 2014, Bay Company would have earned 6 months of interest on the Community bonds.

To calculate the interest, we can use the following formula: 
Interest = Principal x Rate x Time

Principal = $1,000 (the face value of each bond)
Rate = 8% (the annual interest rate)
Time = 6/12 (6 months out of the total 12 months)

Interest = $1,000 x 8% x 6/12 = $40 per bond

Since Bay Company acquired 60 bonds, the total interest earned would be: 
$40/bond x 60 bonds = $2,400

Therefore, the journal entry at December 31, 2014 would be:

Debit: Interest Receivable- $2,400 
Credit: Interest Revenue- $2,400

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