Exhibit 14-12
On January 1, 2016, Jewels, Inc. sold $200,000 of its 12% five-year bonds to yield 10%. Interest is paid each January 1 and July 1, and effective interest amortization is used. On May 1, 2018, Jewels, retired $100,000 of the bonds at 104. The book value of the bonds on December 31, 2017, was $212,926.
-Refer to Exhibit 14-12. Which of the following would be included in the interest accrual entry on May 1, 2018?

Question

Quizplus · Accepted Answer

The interest accrual entry on May 1, 2018, would include a debit to Bond Interest Expense. This is because the bonds were sold to yield 10%, and interest is accrued over the period from the last payment date (January 1) until the retirement date (May 1). The amount of interest expense is calculated based on the effective interest rate method, which takes into account the book value of the bonds and the yield at the time of issuance.

Exhibit 14-12 On January 1, 2016, Jewels, Inc. Sold $200,000 of Its