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On January 1, 2022, 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 trading investments.The bonds were sold on July 2, 2022 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 Income for $875.
C)credit to Interest Income for $1,750.
D)credit to Trading Investments for $875.

Question

Use the following information for questions 
On January 1, 2022, 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 trading investments.The bonds were sold on July 2, 2022 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 Income for $875.
C)credit to Interest Income for $1,750.
D)credit to Trading Investments for $875.

Quizplus · Accepted Answer

The correct entry for receiving the July 1 interest payment involves recognizing the interest income earned on the bonds. Since the bonds have a face value of $50,000 and an interest rate of 3.5%, the semi-annual interest payment is calculated as ($50,000 * 3.5%) / 2 = $875. Therefore, the entry includes a credit to Interest Income for $875, reflecting the income earned from the bond investment for the period.

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