On July 1,2017,Overlin Corp.purchased $100,000 of 8% bonds at face value.Interest is paid annually on June 30.If the accounting year for Overlin ends at December 31,2017,what will be reported with respect to the bonds on that date?

Question

Quizplus · Accepted Answer

Since Overlin Corp. purchased the bonds at face value, the carrying value of the bonds will be the same as the face value, which is $100,000. However, since the interest payment date is on June 30, interest income for the six months ending December 31, 2017, has not yet been received, so it must be accrued. Therefore, choice C is correct. The cash received in interest and any loss on the bonds will not be reported until the interest payment date, so choices B and D are incorrect. Choice A is incorrect because the carrying value remains the same as the face value.