On March 1, 2016, Stratford Lighting issued 14% bonds, dated March 1, with a fac

Question

On March 1, 2016, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $840,000. The bonds sold for $819,000 and mature on February 28, 2036 (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. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2016, interest on August 31, 2016, interest on December 31, 2016 and interest on February 28, 2017.

Explanation / Answer

Date Account Title and Explanations Debit($) Credit($) Mar-01 Cash 819000 Discount on bonds payable 21000 Bond Payable 840000 (issuance of bond recorded) Aug-31 Interest Expense 59325 Discount on Bonds Payable 525 [21000/40] Cash 58800 (Interest expense and amortization of discount recorded) Dec-31 Interest Expense 39550 Discount on Bonds Payable 350 [(21000/40)*(4/6)] Interest payable 39200 [0.07*840000*(4/6)] (Interest expense and amortization of discount recorded) 2017 Feb-28 Interest expense 19775 Interest payable 39200 Discount on bonds payable 175 Cash 58800 (interest paid)

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