Lisle Corporation issued $200,000 of 10% bonds on January 1,2019.The bonds pay interest semiannually on January 1 and July 1.The company has a fiscal year end of May 31.On May 31,2019,the Lisle Corporation will:

Question

Quizplus · Accepted Answer

Since the fiscal year end of Lisle Corporation is May 31, the company needs to accrue interest expense from January 1 through May 31 in its financial statements. Therefore, choice C is the correct answer. The company will make a journal entry to accrue interest expense based on the number of days from January 1 to May 31, which is approximately 5 months of interest. The interest expense for the six months period from January 1 to July 1 will be recorded in the next fiscal year. Choice A is incorrect because it pertains to the period after the fiscal year end. Choice B is incorrect because it pertains to the period before the fiscal year end. Choice D is incorrect because it only records the cash interest paid, and does not recognize the expense in the financial statements.

Lisle Corporation Issued $200,000 of 10% Bonds on January 1,2019