Homework Answers
| Date | Account Titles and Explanation | Debit | Credit |
| May 1 | 7% Bonds | $200,000 | |
| Cash | $200,000 | ||
| ( Being amount paid to purchase 7%, 10 year Bonds ) | |||
| November 1 | Cash | $7,000 | |
| Interest Revenue | $7,000 | ||
| ( Being six months interest received from the 7% Bonds, which increases the interest revenues ) | |||
| December 31 | Accrued Interest Receivable | $2,333 | |
| Interest Revenue | $2,333 | ||
| ( Being interest income for the 2 months accrued and booked ) | |||
| May 1 | Cash | $7,000 | |
| Accrued Interest Receivable | $2,333 | ||
| Interest Revenue | $4,667 | ||
| ( Being interest income for the remaining 4 months booked and 6 months interest is received ) | |||
Interest revenue ( interest for 6 months ) = ( Par value of Bond * Interest rate ) / 2 = ( $200,000 * 7% ) / 2 = $7,000.
Accrued Interest Receivable ( interest for 2 months ) = ( Par value of Bond * Interest rate ) 2 / 12 = ( $200,000 * 7% ) * 2 / 12 = $2,333 ( rounded off to nearest dollar ).
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