Landmark buys $300,000 of SRW Company's 8%,5-year bonds payable,at par value on July 1.Interest payments are made semiannually on December 31 and June 30.The journal entry Landmark should make to record interest earned at year-end December 31 is:

A) Debit Cash $12,000,credit Interest Revenue $12,000.
B) Debit Cash $24,000,credit Interest Revenue $24,000.
C) Debit Cash $8,000,credit Interest Revenue $8,000.
D) Debit Interest Receivable $12,000,credit Interest Revenue $12,000.
E) Debit Interest Revenue $12,000,credit Cash $12,000.

Question

Toncan Tanyto · Accepted Answer

Final Answer : A, Explanation :  Since Landmark bought the bonds on July 1st, they will only receive interest payments for half a year before the year-end December 31st. The bond pays an 8% annual interest rate, so for the six months ending December 31st, Landmark would earn $300,000 x 8% x 0.5 = $12,000 in interest. The journal entry to record this would be to debit Cash $12,000 (since they received the interest payment in cash) and credit Interest Revenue $12,000 (to show the earnings from the bond investment).

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