Question

On February 1, 2018, Strauss-Lombardi issued 10% bonds, dated February 1, with a face amount of $850,000. The bonds sold for $781,801 and mature on January 31, 2038 (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 entry to record their issuance by Strauss-Lombardi on February 1, 2018, interest on July 31, 2018 (at the effective rate), adjusting entry to accrue interest on December 31, 2018 and interest on January 31, 2019. (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

	Journal entries
	Strauss-Lombardi
Date	Particular	Debit ($)	Credit($)
Feb-01	Cash A/C	781801
	Discount on bonds payable	68199
	To Bonds payable		850000
Jul-31	Interest Expenses (781801 * 11 %*6/12)	43000
	To Discount on bonds payable (43000 -42500 )		500
	To Cash (850000 *10% * 6/12)		42500
Dec-31	Interest Expenses ( 781801 + 500 ) * 11% *6/12*5/6	35855
	To Discount on bonds payable (difference )		438
	To interest payable (850000 * 10%*6/12 * 5/6 )		35417
Jan-31	Interest Expenses(781801 + 500 ) * 11% * 6/12 * 1/6)	7171
	Interest payable	35417
	To Discount on bonds payable (difference )		88
	To Cash (850000 *10% * 6/12)		42500