A company issued 6%, 10 year bonds with a par value of $500,000 on April 1. Interest is payable each Sept. 30 and March 31,2019. The journal entry to accrue interest expense as of December 31,2019, is:

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The bonds have a stated interest rate of 6%, which means the annual interest payment is $30,000 ($500,000 x 6%). Since interest is payable each Sept. 30 and March 31, there are two interest payments per year, or $15,000 ($30,000 divided by 2) per payment. Therefore, the accrued interest expense as of Dec. 31, 2019, would be $7,500 ($15,000 divided by 2). This is because only 6 months out of the 12 month period have elapsed, so half of the annual interest payment accrues as of Dec. 31. The journal entry to accrue this interest expense would be to debit Bond Interest Expense for $7,500 and credit Bond Interest Payable for $7,500.

A Company Issued 6%, 10 Year Bonds with a Par