When bonds are purchased between interest dates, the accrued interest should be

Question

Quizplus · Accepted Answer

When bonds are purchased between interest dates, the buyer owes the seller the interest that has accrued since the last interest payment date. This accrued interest is not debited to Interest Receivable or Interest Income because it is not income earned by the buyer nor is it receivable by the buyer. Instead, it is an expense related to the purchase of the bond. Therefore, the correct treatment is to either debit Interest Expense (reflecting the cost to the buyer for the interest that has accrued up to the purchase date) or add it to the cost of the bond investment (Investment in Bonds), depending on the accounting policy of the buyer. However, since "Interest Expense" is not an option provided, the best answer given the choices would be D) either a or b, acknowledging a misunderstanding in the original question's formulation.

When Bonds Are Purchased Between Interest Dates, the Accrued Interest