Question

A company holds $40,000 of 7% bonds as a held-to-maturity security. Assuming all prior interest entries have been accounted for, the bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800. True False

Answer 1

Answer:

False

Explanation:

Since the maturity amount is $40,000 and the interest rate is 7%

So, the receipt of the semiannual interest payment would be

= Maturity amount × interest rate

= $40,000 × 7% ÷ 2

= $1,400

Since the interest payment is semi-annual so we divide the interest rate by 2 and if the time period is given so we double it.

Hence, the given statement is false