Ban Co. purchased 50 5% Waylan Company bonds on January 1 2016 for $50500 cash. Interest is payable annually on January 1. The entry to record the December 31 2016 interest accrual would include a

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The 5% interest on the Waylan Company bonds would be $2500 ($50500 x 5%). Ban Co. has held the bonds for the entire year, so they have earned the full interest amount. However, interest is only payable on January 1 of each year. Therefore, on December 31, 2016, Ban Co. would need to accrue (or recognize) the interest earned but not yet received. This would be done with a debit to Interest Receivable for $2500, representing the amount of interest Ban Co. has earned but not yet received.

Ban Co Purchased 50 5% Waylan Company Bonds on January 1