In Year 7, Nortel Manufacturing issued $100,000 semi-annual 12% bonds at par.Interest is payable on July 1 and January 1.What entry is necessary at December 31, Year 9?
A)Interest Expense 6,000 Cash 6,000
B)Interest Expense 6,000 Bonds Payable 6,000
C)Interest Expense 6,000 Interest Payable 6,000
D)Interest Expense 12,000 Interest Payable 12,000
E)Cash 6,000 Interest Payable 6,000

Question

Quizplus · Accepted Answer

At December 31, Year 9, the company should record the interest expense and the interest payable for the semi-annual interest payment that will be due on January 1. The entry should be:
Interest Expense    6,000
Interest Payable    6,000
Option A is incorrect because it only records the cash payment of interest, not the expense recognition. Option B is incorrect because it reduces the Bonds Payable account, which is not necessary until the bond is retired. Option D is incorrect because it records the full year's interest expense. Option E is incorrect because it only records the payment of interest, not the recognition of the expense.

In Year 7, Nortel Manufacturing Issued $100,000 Semi-Annual 12% Bonds