[donnychristal]

CPA-00475 a bond issued on June 1, of the current year, has interest payment dates of April 1 and October 1. Bond interest expense for the current year ended December 1 is for a period of :

A. seven months

B. six months

C. three months

D. four months

the answer is a but I chose c. the explanation is ‘interest expense is recognized for the entire period from bond issuance through the fiscal year end. three months would only be the time period from October 1 through December 1 and this amount represents the interest accrual.’

I am really confused. I looked back at the book for example JE of bonds issued between interest date and they show ‘bond interest expense (payable)’. can someone help explain this a little better? what’s the difference between interest expense and accrual??

FAR - 75
AUD - 64/71
BEC - 85

[Anonymous]

The call of the question is asking for interest expense as of December 1st. Expense is recognized when incurred, in this case that would be 7 months of interest expense as of year end. June – December.

Interest accrual is booked when you have incurred interest expense, but have not paid it. So as of December year end, you have 2 months of interest accrued: October and November.

[Missy]

When you book an expense, the other side of the JE is either going to be an accrual (we're not ready to pay this yet), accounts payable (we will be paying it within one operating cycle) or cash (check goes out immediately).

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Missy]

Another important distinction is the expense is your P&L (Income statement) entry, while the other options are your balance sheet entry.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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