A company holds $40,000 of 7% bonds as a held-to-maturity security.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.
$40,000 * 7% * ½ year = $1,400

Question

Quizplus · Accepted Answer

The correct calculation for the semiannual interest payment is $40,000 * 7% * ½ year = $1,400, not $2,800. The journal entry should reflect a debit to Cash for $1,400 and a credit to Interest Revenue for $1,400.

A Company Holds $40,000 of 7% Bonds as a Held-To-Maturity