Question

On February 1, 2021, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $940,000. The bonds sold for $859,357 and mature on January 31, 2041 (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 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.

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

Solution 1 to 4:

Journal Entries - Strauss-Lombardi
Date	Particulars	Debit	Credit
1-Feb-21	Cash Dr	$859,357.00
	Discount on bond payable Dr	$80,643.00
	To Bonds payable		$940,000.00
	(To record issue of bond at discount)
31-Jul-21	Interest Expense Dr ($859,357*10%*6/12)	$42,968.00
	To Discount on bond payable		$668.00
	To Cash ($940,000*9%*6/12)		$42,300.00
	(Being first semiannual interest payment made and discount amortized)
31-Dec-21	Interest Expense Dr ($860,025*10%*5/12)	$35,834.00
	To Discount on bond payable		$584.00
	To Interest payable		$35,250.00
	(Being Interest expense accrued)
31-Jan-22	Interest Expense Dr ($860,025*10%*1/12)	$7,167.00
	Interest payable Dr	$35,250.00
	To Discount on bond payable		$117.00
	To Cash ($940,000*9%*6/12)		$42,300.00
	(To record semiannual interest payment)