Five percent bonds with a total face value of $12,000 were purchased at par during the year.The last interest payment for the year was received on July 31.The bonds pay interest semiannually.The adjusting entry at December 31 would include a
A) debit to interest revenue of $600.
B) debit to interest revenue of $250.
C) credit to interest revenue of $300.
D) credit to interest revenue of $250.

Question

Quizplus · Accepted Answer

Since the bonds were purchased at par, there is no premium or discount to be amortized. Therefore, the only adjusting entry required at December 31 would be to accrue interest revenue for the period from August 1 (the date of the last interest payment) to December 31. This period would include two months of interest (August and September) and would amount to $250 ($12,000 x 5% x 2/12). Since the amount represents revenue earned but not yet received, it would be credited to interest revenue.

Five Percent Bonds with a Total Face Value of $12,000