Alan Company purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Alan later sold $250,000 of the bonds at 97. The journal entry for the purchase would include a

A) credit to Interest Receivable for $4,500
B) credit to Interest Revenue for $4,500
C) debit to Interest Receivable for $4,500
D) debit to Interest Revenue for $4,500

Question

Madison Chaney · Accepted Answer

Final Answer : C, Explanation :  The correct answer is C) debit to Interest Receivable for $4,500 because when Alan Company purchases the bonds, the accrued interest of $4,500 is an amount that Alan is entitled to receive at the next interest payment date. Therefore, it is recorded as a debit to Interest Receivable, indicating an asset or amount owed to Alan Company.

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