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On January 1, 2018, Warner Inc. purchased 3.5%, $50,000 face value Jackson Corp. bonds at face value. Interest is payable semi-annually on July 1 and January 1. The bonds are classified as held for trading investments. The bonds were sold on July 2, 2018 for $53,000.
-Warner's entry to record the receipt of the July 1 interest payment would include a
A) debit to Interest Expense for $875.
B) credit to Interest Revenue for $875.
C) credit to Interest Revenue for $1,750.
D) credit to Held for Trading Investments for $875.

Question

Quizplus · Accepted Answer

The interest payment for the period is calculated as $50,000 * 3.5% * (6/12) = $875. Since the bonds are held for trading, the interest received is recorded as interest revenue.

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