Landmark buys $300,000 of SRW Company's 8%,5-year bonds payable,at par value on July 1.Interest payments are made semiannually on December 31 and June 30.The journal entry Landmark should make to record interest earned at year-end December 31 is:

Question

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Since Landmark bought the bonds on July 1st, they will only receive interest payments for half a year before the year-end December 31st. The bond pays an 8% annual interest rate, so for the six months ending December 31st, Landmark would earn $300,000 x 8% x 0.5 = $12,000 in interest. The journal entry to record this would be to debit Cash $12,000 (since they received the interest payment in cash) and credit Interest Revenue $12,000 (to show the earnings from the bond investment).

Landmark Buys $300,000 of SRW Company's 8%,5-Year Bonds Payable,at Par