On November 1, 20X1, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1, 20X1. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31, 20X1, balance sheet?
Interest payable is the amount of interest due to the bondholder from the date of last payment of interest (October 1, 20X1) till the year end (December 31, 20X1), irrespective of the date of issue of the bond (November 1, 20X1). Interest payable = Face value x Stated interest rate x period since last payment = $8,00,000 x 8% x 3/12= $16,000.