Question

On August 1, 2017, Gonzaga Corporation issued $600, 000, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Gonzaga's year-end is December 31.
1. Prepare journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
2. Prepare journal entry to record the accrual of interest on December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
3. Prepare journal entry to record the payment of interest on August 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Answer: Please see answers in the explanation column

Explanation:

journal entry to record the issuance of the bonds.

Date               Account           Debit                  Credit

August 1st         Cash           $600, 000

2017                Bonds payable                           $600, 000

2, journal entry to record the accrual of interest on December 31, 2017.

Date               Account                          Debit                  Credit

Dec 31st         Interest Expense          $17,500

2017               Interest  payable                                     $17,500

Calculation =

Interest = P X T X R

From August - December31st = 5 months

600,000 x 5/12 x 7%= 600,000 x 0.07 x5/12= $17,500

3. journal entry to record the payment of interest on August 1, 2018

Date               Account                          Debit                  Credit

Aug 1st         Interest Expense          $24,500

2018            Interest  payable           $17,500

                    Cash                                                             $42,000

Calculation =

Interest = P X T X R

From January- August `1st= 7 months

600,000 x 7/12 x 7%= 600,000 x 0.07 x7/12= $24,500