Debra Technologies invested $50,000 to buy $50,000 face value, 8%, five-year in municipal bonds on January 2, 2010. The bonds will mature on January 2, 2015. The bonds pay interest semiannually on January 2 and July 2 every year till maturity. Based on the information provided, which of the following will be included in the journal entry for the transaction on January 2, 2014?

Question

Quizplus · Accepted Answer

The bonds pay interest semiannually, which means that interest revenue will be earned twice a year on January 2 and July 2. As of January 2, 2014, Debra Technologies will have earned interest revenue for the first half of the year (January 2-June 30). Since the face value of the bonds is $50,000 and the coupon rate is 8%, the annual interest payment will be $4,000 ($50,000 x 8%). Since interest is earned semiannually, the interest revenue earned for the first half of the year will be $2,000 ($4,000 / 2). Therefore, the journal entry for January 2, 2014 will include a credit to Interest Revenue for $2,000.

Debra Technologies Invested $50,000 to Buy $50,000 Face Value, 8