Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8%, and interest is paid semiannually. The journal entry to record the receipt of interest on the next interest payment date would be

A) debit Cash, $4,000; credit Interest Revenue, $4,000
B) debit Cash, $4,000; credit Interest Receivable, $4,000
C) debit Cash, $4,000; credit Interest Receivable, $1,500, and Interest Revenue, $2,500
D) debit Cash, $2,500; credit Interest Revenue, $2,500

Question

Shaun Wistburg · Accepted Answer

Final Answer : C, Explanation :  Ruben Company purchased the bonds at 100, so they paid the face value of $100,000, plus $1,500 in accrued interest for a total cost of $101,500. The bond interest rate is 8%, so the semiannual interest payment is $4,000 ($100,000 x 0.08 x 6/12). Since Ruben Company purchased the bonds in the middle of an interest period, they would have accrued $1,500 in interest from the last interest payment date until the date of purchase, which would be credited to Interest Receivable.Therefore, the journal entry to record the next interest payment would be:Debit Cash $4,000Credit Interest Receivable $1,500Credit Interest Revenue $2,500

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