Question

On March 1, 2018, Stratford Lighting issued 10% bonds, dated March 1, with a face amount of $690,000. The bonds sold for $678,000 and mature on February 28, 2038 (20 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31. points Skipped Required: 1. to 4. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2018, interest on August 31, 2018, interest on December 31, 2018 and interest on February 28, 2019. (Do not round your intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required in the first account field.) eBook View transaction list Print References Journal entry worksheet (1) 2 3 4 Record the issuance of the bond on March 1, 2018 Note: Enter debits before credits Date General Journal Debit Credit March 01, 2018

Answer 1

Face Value of Bonds = $690,000
Issue Value of Bonds = $678,000

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $690,000 - $678,000
Discount on Bonds = $12,000

Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5% * $690,000
Semiannual Coupon = $34,500

Time to Maturity = 20 years
Semiannual Period = 40

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $12,000 / 40
Semiannual Amortization of Discount = $300

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $34,500 + $300
Semiannual Interest Expense = $34,800

Credit $ $ Debit 678,000 12,000 $ 690,000 $ 34,800 $ 300 34,500 Date General Journal Mar. 01, 2018 Cash Discount on Bonds Payable Bonds Payable Aug. 31, 2018 Interest Expense Discount on Bonds Payable Cash Dec. 31, 2018 Interest Expense ($34,800 * 4/6) Discount on Bonds Payable Interest Payable ($34,500 * 4/6) Feb. 28, 2019 Interest Expense ($34,800 * 2/6) Interest Payable Discount on Bonds Payable Cash $ 23,200 200 23,000 $ $ 11,600 23,000 100 34,500