Question

On February 1, 2021, Strauss-Lombardi issued 10% bonds, dated February 1, with a face amount of $720,000. The bonds sold for $662,232 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.)

Answer 1

semi Annual cash interest = 720000*10% *6/12 =	36000
Amort Chart
Date	Cash Int	Int expense	Discount	Unamortized	Carrying
			amortized	Discount	Value of bonds
01.02.21				57768	662232
31.07.21	36000	36423	423	57345	662655
31.01.22	36000	36446	446	56899	663101
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01.02.21	Cash				662232
	Discount on bonds payable		57768
	Bonds payable				720000
	(for issuance of bonds)
31.07.21	Interest expense			36423
	Cash					36000
	Discount on bonds payable			423
	(for interst expense)
31.12.21	Interest expense			30372
	Interest payable (36000*5/6)			30000
	Discount on bonds payable (446*5/6)		372
	(for interst expense)
31.01.22	Interest expense	(36446-30372)	6074
	Interest payable			30000
	Cash					36000
	Discount on bonds payable (446-372)		74
	(for interst expense)