Asked by Gabriel Barrowman on Jun 09, 2024
Verified
Refer to Exhibit 14-7.Which of the following would be included in the interest accrual entry?
A) credit to Interest Payable for $3, 333
B) debit to Bond Interest Expense for $3, 549
C) credit to Discount on Bonds Payable for $4, 259
D) debit to Premium on Bonds Payable for $451
Effective Interest Amortization
Effective Interest Amortization is a method of calculating the amortization of a bond's premium or discount, taking into account the time value of money.
Interest Accrual
The accumulation of interest on a loan or investment over time, which has been earned but not yet paid.
- Recognize and utilize the correct approaches to amortize bond discounts or premiums.
Verified Answer
MS
Michael SungaJun 14, 2024
Final Answer :
B
Explanation :
The interest accrual entry would include a debit to Bond Interest Expense which represents the interest expense incurred during the period. Option A is incorrect because it suggests a credit to Interest Payable which would only be recorded if interest was not previously paid or accrues. Option C is incorrect because it suggests a credit to Discount on Bonds Payable which would only be recorded if there was a discount on the bonds at issuance. Option D is incorrect because it suggests a debit to Premium on Bonds Payable which would only be recorded if there was a premium on the bonds at issuance.
Learning Objectives
- Recognize and utilize the correct approaches to amortize bond discounts or premiums.