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30 January, 09:50

A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:

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  1. 30 January, 09:54
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    The interest accrued is $2,500.

    Explanation:

    The income accrued will arise after the date of purchase (May 1) of the bonds to the ending date of the accounting period (December 31). This duration is equal to 8 months.'

    For the first four months (May 1 to September 1) the income accrued will be the income received semiannually for these four month:

    Income Accrued = $60,000 * 6/12 * 5% = $1,500 Because the payment that will be received will be $1000 which belongs to 6 months starting from March 1 and ending at September 1.

    And for the remainder 4 months (September 1 to December 31)

    Income Accrued = $60,000 * 4/12 * 5% = $1,000

    So the total income accrued for the year will be $2,500
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