Question

On February 1, 2018, Sanford & Son issued 12% bonds dated February 1, 2018, with a face amount of $100,000. The bonds sold for $117,160 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Sanford & Son's fiscal year is the calendar year.

Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018, using the straight-line method.
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.
  

Answer 1

1	February 1, 2018	Cash	117160
		Premium on bonds payable		17160
		Bonds payable		100000
2	July 31, 2018	Interest expense	5571
		Premium on bonds payable	429		=17160/40
		Cash		6000	=100000*12%/2
3	December 31, 2018.	Interest expense	4643
		Premium on bonds payable	358		=429*5/6
		Interest payable		5000	=100000*12%*5/12
4	January 31, 2019	Interest expense	929
		Interest payable	5000
		Premium on bonds payable	71		=429-358
		Cash		6000	=100000*12%/2
Note: Answers might vary +1 due to rounding off