Question

Assume that on July 1, Jerome, Inc., paid $100,000 to buy Potter's 8 percent, two-year bonds with a $100,000 par value. The bonds pay interest semiannually on December 31 and June 30. Jerome intends to hold the bonds until they mature. Complete the necessary December 31 entry to record receipt of interest by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Answer 1

Answer and Explanation:

The journal entry to record the receipt of interest is shown below;

Cash Dr ($100,000 × 8% × 6 months ÷ 12 months) $4,000

To interest income $4,000

(being the receipt of the interest is recorded)

Here the cash is debited as it increased the assets and credited the interest income as it increased the revenue