Answer:
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
