Question

On February 1, 2018, Strauss-Lombardi issued 8% bonds, dated February 1, with a face amount of $630,000. The bonds sold for $572,036 and mature on January 31, 2038 (20 years). The market yield for bonds of similar risk and maturity was 9%. 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.)

Answer 1

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