Question

Carla purchased a $50,000 bond on its issue date, November 1, 2019. The bond only pays...

Carla purchased a $50,000 bond on its issue date, November 1, 2019. The bond only pays interest at maturity, October 31, 2022, at a rate of 2% compounded annually. What amount of interest must be included in income for 2019?

options:

$500

$0

$1,000

$1,500
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Homework Answers

Answer #1

Ans: $0

Explanation

1) In this case bond will pay interest only at maturity, till than no cash is received from bond.

2) Though it does not pay interest yearly but obliged to pay it later.

3) For Carla, entry on dec .31 would be

Date Account Name Debit Credit
Dec.31 ,2019 Interest Receivable $ 166.67
To Interest Revenue $ 166.67

( $ 50,000 × 2% ×2/12)

4) It increase the asset, which is reported on balance sheet.

5) It does not increase the income, hence no interest is included in 2019.

6) Hence, $0 is the correct option.

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