Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 would include a:

Question

Quizplus · Accepted Answer

When interest is received on an investment in bonds, the journal entry includes a debit to Cash and a credit to Interest Income. Therefore, the correct choice is A, which shows a debit to Cash. Choices B and D are incorrect because they do not reflect the receipt of interest income on July 1. Choice C is incorrect because it represents an account that would have been used if the interest had not been received yet.

Carmel Corporation Purchased 5% Bonds for $42,000 on January 1