Question

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2009, is for a period of:
A. Three months.
B. Four months.
C. Six months.
D. Seven months.

Answer 1

Answer:

D. Seven months.

Explanation:

Bond is defined as a debt instrument that shows the indebtedness big the bond issuer to the bond holder. They are units of cooperates debt issued by companies and they are tradeable. For example corporate bond and municipal bonds.

When a bond is issued on June 1 , with repayment of October 1 and April 1. The interest expense by October will be for 4 months.

However as at December 31, 2009 the accrued interest that will be recognised will be for October to December (that is for 3 months). Though it has not been paid it will be recognised at the end of the accounting period.

This gives a total of 7 months interest expense.