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

Step-by-step 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