Question

On February 1, 2021, Strauss-Lombardi issued 10% bonds, dated February 1, with a face amount of $930,000. The bonds sold for $855,382 and mature on January 31, 2041 (20 years). The market yield for bonds of similar risk and maturity was 11%. 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 entries to record their issuance by Strauss-Lombardi on February 1, 2021, interest on July 31, 2021 (at the effective rate), adjusting entry to accrue interest on December 31, 2021 and interest on January 31, 2022. (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.)

Journal entry worksheet:

1) Record the issuance of the bond on February 1, 2021.

2) Record the interest on July 31, 2021 (at the effective rate).

3) Record the accrued interest on December 31, 2021.

4) Record the interest on January 31, 2022.

Answer 1

Date	Account Titles and Explanation	Debit (in $)	Credit ( in $)
February 1, 2021	Cash	$ 855,382
	Discount on bonds payable    - Bal. Fig.	74618
	Bonds payable		$ 930,000
	(To record the issue of Bond)
July 31, 2021	Interest expense ( $ 855,382 x 11% x 1/ 2)	$ 47,046
	Discount on bonds payable   - Bal. Fig.		$ 546
	Cash                ( $ 930,000 x 10% x 1/2)		$ 46,500
	(To record the interest Expense)
December 31, 2021	Interest expense ( $ 855,382 + $ 546 )x 11% x 5/12))	$ 39,230
	Discount on bonds payable - Bal. Fig.		$ 480
	Interest payable                ( $ 930,000 x 10% x 1/2)		$ 38,750
	(To record the interest Accrued)
January 31,2022	Interest expense ( $ 855,382 + $ 546 )x 11% x 1/12))	$ 7,846
	Interest payable	$ 38,750
	Discount on bonds payable   - Bal. Fig.		$ 96
	Cash		$ 46,500
	(To record the interest Accrued)