Leotis Asset Management invested in the bonds of DEF Co.on 1/1/16.Leotis intends to hold the bonds until maturity.These 5-year bonds had a face vale of $300,000,pay 5% interest on 6/30 and 12/31 of each year,and were issued when the market rate of interest was 6%,resulting in a cost of $287,205.Which of the following is the correct journal entry to record the receipt of the interest payment on 6/30/16?

Question

Quizplus · Accepted Answer

Choice B correctly records the receipt of the interest payment on 6/30/16 by debiting Cash for $7,500, crediting Bond Interest Income for $6,750, and crediting Discount on Bonds Payable for $750. This entry reflects the amortization of the discount on the bonds and the recognition of the interest income earned. The other choices either do not record the correct amounts or do not reflect the amortization of the discount.

Leotis Asset Management Invested in the Bonds of DEF Co