A bond sinking fund investment is started on January 5, 2019, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2019. The entry to record the earnings made on the sinking fund investment includes

Question

Quizplus · Accepted Answer

Since the $10,000 was initially transferred to the Bond Sinking Fund Investment account, any earnings made on that investment should also be recorded in that account. Therefore, the entry to record the $1,100 of earnings would be a debit to Bond Sinking Fund Investment for $1,100 and a credit to Income from Sinking Fund Investment for $1,100. Option A is incorrect because it incorrectly credits the income to Cash instead of the investment account. Option B is incorrect because it incorrectly records the income as a credit to the investment account itself. Option D is incorrect because it uses a generic account title of Interest Income instead of the specific Income from Sinking Fund Investment account.

A Bond Sinking Fund Investment Is Started on January 5