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Answer :
Final answer:
Dooley Company bought bonds at a discounted rate that yield 5% interest annually. The interest is paid semi-annually, yielding Dooley Company $2,000 every six months.
Explanation:
On January 1, 2017, Dooley Company invested in $80,000, 5% bonds with a maturity date of January 1, 2027. Dooley Company bought these bonds at a price of 86.4 which is lesser than the face value. This indicates that these bonds were bought at a discount. The interest on these bonds is paid semi-annually on January 1 and July 1.
In terms of receiving interest, here's how the company’s financial entry would look like: On July 1, 2017, Dooley Company will receive interest for six months on these bonds. The interest income for Dooley will be 5% of $80,000 divided by 2 (as it's semi-annual), which results in $2,000. This will be marked as Interest Receivable in the debit column and Interest Revenue in the credit column.
Learn more about Accounting for Bond Interest here:
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The answer is : debit Cash for $2,000 and credit Interest Revenue for $2,000.00
$80,000 × 5% × 1/2 = $2,000.00
