On February 1, 2018, Strauss-Lombardi issued 9% bonds, dated February 1, with a

Question

On February 1, 2018, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of S860.000. The bonds sold for 786,220 and mature on January 31, 2038 (20 years). The market yield for bonds of similar risk and maturity was 10% Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi's fiscal year ends December 31. Required: 1. to 4. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2018, interest on July 31, 2018 (at the effective rate), adjusting entry to accrue interest on December 31, 2018 and interest on January 31, 2019. (Do not round your intermediate calculations and round your final answers to nearest whole dollar. If no entry is required for a transaction/event select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Date General Journal Debit Credit February Cash 786,220 Discount on bonds payable 73,780 Bonds payable 860,000 2 July 31, 2018 Interest expense 9,311 Cash Discount on bonds payable December 31, interest expense 32,785 2018 Interest payable Discount on bonds payable January , Interest expense 2019 6,557 interest payable Cash Discount on bonds payable 32,250

Explanation / Answer

Date Accounts title Debit Credit 1-Feb-18 Cash 786220 Discount on bonds payable(difference) 73780 Bonds payable 860000 ( To record the issue of bond at discount) 31-Jul-18 Interest Expense(5%*786220) 39311 Discount on bonds payable(difference) 611 Cash (4.5*860000) 38700 ( To record the payment of interest) 31-Dec-18 interest expense((786220+611)*5%*5/6) 32785 Discount on bonds payable 535 Interest payable (860000*4.5%*5/6) 32250 ( To record the accrued interest expense) 31-Jan-18 interest Expense(786220+611)*5%*1/5 7868 Interest payable (860000*4.5%*5/6) 32250 Discount on bonds payable 1418 Cash (4.5%*860000) 38700 ( To record the payment of the interest)

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