On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a:

Question

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Since interest is payable semiannually on July 1 and January 1, the bondholders would have earned interest for the period July 1 to December 31. As a result, the company would have an obligation to pay interest of $1,500 ($50,000 x 6% x 6/12) on January 1. Therefore, the company will record a debit to Interest Receivable for $1,500 and a credit to Interest Revenue for $1,500 to accrue for the interest expense. Choice A is the correct answer.

On January 1, 2012, Winston Company Purchased 6% Bonds for $50,000