On January 31, 2013, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2012, and mature on December 31, 2022. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2013, balance sheet?
A)$18,000.
B)$36,000.
C)$54,000.
D)$48,000.

Question

Quizplus · Accepted Answer

The bonds were issued on January 31, 2013, which means that interest payments had not yet been made for the period of December 31, 2012 (the bond date) to January 31, 2013 (the issuance date). Therefore, accrued interest payable should only include the interest accrued from January 1, 2013, to September 30, 2013, which is 9 months.

Each semiannual interest payment is $600,000 x 12% x 6/12 = $36,000.

Accrued interest payable as of September 30, 2013, is: 9/12 x $36,000 = $27,000.

However, since interest was already paid on June 30, 2013, B Corp. only needs to report the accrued interest payable for the period of July 1, 2013, to September 30, 2013, which is 3 months.

Accrued interest payable as of September 30, 2013, is 3/12 x $36,000 = $9,000.

Therefore, the correct answer is A) $18,000.