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On February 1, 2018, Strauss-Lombardi issued 8% bonds, dated February 1, with a face amount of...

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Accounting

On February 1, 2018, Strauss-Lombardi issued 8% bonds, datedFebruary 1, with a face amount of $630,000. The bonds sold for$572,036 and mature on January 31, 2038 (20 years). The marketyield for bonds of similar risk and maturity was 9%. Interest ispaid semiannually on July 31 and January 31. Strauss-Lombardi’sfiscal year ends December 31.

Required:
1. to 4. Prepare the journal entry to record theirissuance by Strauss-Lombardi on February 1, 2018, interest on July31, 2018 (at the effective rate), adjusting entry to accrueinterest on December 31, 2018 and interest on January 31, 2019.(Do not round your intermediate calculations and round yourfinal answers to nearest whole dollar. If no entry is required fora transaction/event, select "No journal entry required" in thefirst account field.)

Answer & Explanation Solved by verified expert
4.4 Ratings (942 Votes)

Date Accounts Titles & Explanation Debit Credit
Feb 1, 2018 Cash $572,036
Discount on bonds payable $57,964 Difference
Bonds Payable $630,000
(To record issue of bonds)
July 31, 2018 Interest expense ($572,036 x 9%) $51,483
Discount on bonds payable $1,083 Difference
Cash ($630,000 x 8%) $50,400
(To record interest expenses)
Dec 31, 2018 Interest expense [($572,036 + $1,083) x 9% x5/6] $42,984
Discount on bonds payable $984 Difference
Interest payable ($630,000 x 8% x5/6) $42,000
Jan 31, 2019 Interest expense [($572,036 + $1,083) x 9% x1/6] $8,597
Interest payable $42,000
Discount on bonds payable $197 Difference
Cash ($630,000 x 8%) $50,400

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