An interest-bearing investment is sold mid-way through the year. At the time of sale, how is the accrued interest typically treated?

Question

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Typically, the purchaser pays the seller an amount equal to the accrued interest since the last payment date. This is because the interest earned up to the date of sale belongs to the seller as they were the holder of the investment during that period. Therefore, to compensate the seller for this interest, the purchaser will pay them an amount equal to the accrued interest. Choice A is incorrect because the seller is entitled to the interest accrued up to the date of sale. Choice B is incorrect because the interest owing is the responsibility of the seller, not the investee. Choice D is incorrect because the interest payments are made to the current holder of the investment, not those who held it in the past.

An Interest-Bearing Investment Is Sold Mid-Way Through the Year