On January 1, Bucket Company purchased as an investment a $1,000, 7% bond for $980. Bucket plans to hold the bond for two years. The bond pays interest on January 1 and July 1. The entry to record the interest accrual on December 31 would include a:

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Since the interest payment date is January 1, the interest has not yet been received or recognized. Therefore, the entry to accrue the interest on December 31 would include a debit to Interest Receivable for $35 (7% of $1,000) and a credit to Interest Revenue. The investment account would not be affected until the interest is actually received or the bond is sold.

On January 1, Bucket Company Purchased as an Investment a $1,000