On August 1, 2014, Ortega Corporation issued $687,600, 7%, 10-year bonds at face

Question

On August 1, 2014, Ortega Corporation issued $687,600, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Ortega’s year-end is December 31.

1. Prepare journal entries to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2. Prepare journal entries to record the accrual of interest on December 31, 2014.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

3.Prepare journal entries to record the payment of interest on August 1, 2015.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

On August 1, 2014, Ortega Corporation issued $687,600, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Ortega’s year-end is December 31.

Explanation / Answer

The entries will be as follows:

Date Particulars Debit Amount Credit Amount

1/8/2014 Bank/CashA/c Dr $687600

   To 7% Bonds $687600

(Being Bonds issued at face value)

31/12/2014 Interest ExpenseA/c Dr $20055

To Interst PayableA/c $20055

   ($687600*7%*5/12)

   (Being Interest accrued for the period 1/8/2014 to 31/12/2014)

01/08/2015 Interest ExpenseA/c Dr $28077

   To Interest payable $28077

   ($687600*7%*7/12)

   (Being interest payable for the period 1/1/2015 to 31/7/2014)

1/08/2015 Interest payableA/c Dr $48132

   To Bank/CashA/c $48132

   (Being Interest paid $28077+$20055)

* Interest payable as on 31/12/2014 will be shown as Current Liabilities in the Balance Sheet.

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