On March 1, 2018, Stratford Lighting issued 10% bonds, dated March 1, with a fac

Question

On March 1, 2018, Stratford Lighting issued 10% bonds, dated March 1, with a face amount of $780,000. The bonds sold for $768,000 and mature on February 28, 2038 (20 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31.

Required:
1. to 4. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2018, interest on August 31, 2018, interest on December 31, 2018 and interest on February 28, 2019

Explanation / Answer

Mar-1-18 Cash 768000 Discount on bonds payable 12000       Bonds payable 780000 31-Aug-18 Interest expense 39300       Discount on bonds payable 300 =12000/40       Cash 39000 =780000*10%/2 31-Dec-18 Interest expense 26200       Discount on bonds payable 200 =12000/40/6*4        Interest payable 26000 =780000*10%/12*4 Feb-28-19 Interest expense 13100 Interest payable 26000       Discount on bonds payable 100 =12000/40/6*2       Cash 39000 =780000*10%/2

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