Problem 10-4A (Part Level Submission) On October 1, 2016, Ayayai Corp. issued $732,000, 8%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annually on December 31.

Question

Dwayne Bolton

Business

10 August, 10:32

Problem 10-4A (Part Level Submission) On October 1, 2016, Ayayai Corp. issued $732,000, 8%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annually on December 31.

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Kayden Atkins · Answer 1

At year end 2016, Ayayai Corp. will accrue interest expense of $14,640.

Explanation:

On October 1, 2016, Ayayai Corp. will make the following entries on the issuance of bond:

Dr. Cash $732,000

Cr. Bond payable $732,000

However, at the end year at December 31, Ayayai Corp. will take into account the "Interest expense" accrued (Not paid yet) for the past three months: October, November, and Dec

Following will be the journal entries for it:

Dr. Interest Expense $14,640*

Cr. Interest Payable $14,640

* The calculation of past 3 months interest expense:

Monthly interest expense = ($732,000 x 0.08) / 12 = > $4,880

The cumulative interest expense for 3 months = 3 x $4,880 = $14,640