On January 1, 2011, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1.Milton Company has a calendar year end. The adjusting entry on December 31, 2011, is

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The adjusting entry on December 31, 2011, is needed to record the accrued interest for six months (July 1, 2011, to December 31, 2011) that has not yet been recorded. The interest expense is calculated by multiplying the bond's face value of $1,000 by the bond's stated interest rate of 6% and then dividing by 12 months. Therefore, the adjusting entry is a debit to Interest Expense for $30 ($1,000 x 6% x 6/12) and a credit to Interest Payable for $30.

On January 1, 2011, Milton Company Purchased at Face Value