On January 31,2016,B Corp.issued $600,000 face value,12% bonds for $600,000 cash.The bonds are dated December 31,2015,and mature on December 31,2025.Interest will be paid semiannually on June 30 and December 31.What amount of accrued interest payable should B report in its September 30,2016,balance sheet?

Question

Quizplus · Accepted Answer

The bonds pay 12% annual interest, which is $72,000 per year ($600,000 x 12%). Since interest is paid semiannually, each payment is $36,000. By September 30, 2016, B Corp. would have accrued interest for three months (July, August, September) since the last payment on June 30. The accrued interest for these three months is $18,000 ($36,000 / 6 months x 3 months).