On July 1, 2015, Frank Corp.purchased $100,000 of 8% bonds at face value.Interest is paid annually on June 30.If the accounting year for Frank ends at December 31, 2015, what will be reported with respect to the bonds on that date?

Question

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Since the accounting year for Frank ends on December 31, 2015 and interest is paid annually on June 30, 2016, only six months of interest income ($4,000) will be accrued and reported on the December 31, 2015 balance sheet. The carrying value of the bonds will remain at $100,000 until the next interest payment is made, and therefore, there will be no loss reported in the income statement. The cash received in interest is not relevant to the question.