On January 1,2015,Benson Company purchases $100,000,6% bonds at a price of 95 and a maturity date of January 1,2020.Benson Company plans to hold the bonds until their maturity date.Interest is paid semiannually,on January 1 and July 1.Benson Company has a calendar year end.The adjusting entry on December 31,2015 is:

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Since interest is paid semiannually, half a year's interest of $3,000 ($100,000 x 6% x 1/2) should have been recognized and recorded as interest revenue at the end of June 30, 2015. Therefore, as of December 31, 2015, there is $3,000 of accrued interest that needs to be recorded with a debit to Interest Receivable. However, since the bonds were purchased at a discount (95), the company would also need to adjust the investment in the bonds to reflect the amortization of the discount. The discount amortized over one year would be $5,000 ($100,000 x 0.05), so the company should record a debit to Held-to-Maturity Investment in Bonds for $500 ($5,000/10 periods) to recognize the interest expense. Therefore, the adjusting entry on December 31, 2015 should be a debit to Interest Receivable for $3,000, a debit to Held-to-Maturity Investment in Bonds for $500, and a credit to Interest Revenue for $3,500.

On January 1,2015,Benson Company Purchases $100,000,6% Bonds at a Price