Question

On March 1, 2022, Stratford Lighting issued 14% bonds, dated March 1, with a principal amount of $300,000. The bonds sold for $294,000 and mature on February 28, 2042 (20 years). Interest is paid semiannually on August 31 and February 28. The market yield for bonds of similar risk and maturity was 14.3%.

Required:
1. to 4. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2022, interest on August 31, 2022, interest on December 31, 2022 and interest on February 28, 2023. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Answer 1

Date	Account Tittles and Explanation	Debit	Credit
2022
01-Mar	Cash	$ 294,000
	Bonds Discount	$     6,000
	Bonds Payable		$ 300,000
	Bonds issued at Discount
31-Aug	Interest Expense	$    21,000
	Cash		$    21,000
	Interest paid for 6 months
31-Aug	Interest Expense	$          21
	Bonds Discount		$          21
	Bonds discount amortized for 6 months
31-Dec	Interest Expense	$    14,000
	Interest Payable		$    14,000
	Interest accrued for 4 months
31-Dec	Interest Expense	$     15.33
	Bonds Discount		$      15.33
	Bonds discount amortized for 4 months
2023
28-Feb	Interest Expense	$     7,000
	Interest Payable	$    14,000
	Cash		$    21,000
	Interest paid for 6 months
28-Feb	Interest Expense	$       7.67
	Bonds Discount		$           7.67
	Bonds discount amortized for 2 months

Semi-annual Interest rate = 7%; Semi-annual market Interest rate = 7.15%, No. of Interest Periods =40

Working Notes:

Bonds Amortization Table
	A	B	C	D	E
Interest Paid	Int. Expense		Discount
Interest Period	7% of Par	7.15% of B.V	Amortization	Balance	Book Value
Issued Date	-	-	-	$              6,000	$    294,000
1	$          21,000	$            21,021	$                21	$              5,979	$    294,021
2	$          21,000	$            21,023	$                23	$              5,956	$    294,044
3	$          21,000	$            21,024	$                24	$              5,932	$    294,068
4	$          21,000	$            21,026	$                26	$              5,906	$    294,094
5	$          21,000	$            21,028	$                28	$              5,878	$    294,122
n	$    21,000	$		$    0	$    300,000