Barr Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2010 for $61,250. This includes a brokerage commission of $1,250.
Assume Community pays interest on January 1 and July 1, and the July 1 entry was done correctly. The journal entry at December 31, 2010 would include a credit to

Question

Quizplus · Accepted Answer

Since Community pays interest on January 1 and July 1, Barr Company will earn interest for 6 months, or $3,000 ($1,000 x 10% x 60 bonds x 6/12). Therefore, the journal entry at December 31, 2010 should include a debit to Interest Receivable (to record the interest earned but not yet received) and a credit to Interest Revenue (to recognize the interest earned during the year). Therefore, the correct answer is D, Interest Revenue for $3,000.

Barr Company Acquires 60, 10%, 5 Year, $1,000 Community Bonds