Mel Company purchased $60,000 of Gibson Company's 20-year, 8 percent bonds at 98 on July 1, 2012. The bonds pay interest each January 1 and July 1, and they mature on July 1, 2029. Given this information, the entry needed on December 31, 2012 (year-end), to account for the interest on Gibson Company's bonds would include a debit to

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The bonds pay interest semi-annually, so the interest for six months is calculated as $60,000 * 8% / 2 = $2,400. Since the interest is paid on January 1, the entry on December 31 would include a debit to Interest Receivable for $2,400 to account for the interest earned but not yet received.

Mel Company Purchased $60,000 of Gibson Company's 20-Year, 8 Percent