Question

On March 1, 2021, 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, 2041 (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.
Required:
Prepare the journal entries to record the issuance of the bonds by Stratford Lighting on March 1, 2021, interest on August 31, 2021, accrued interest on December 31, 2021 and interest on February 28, 2022.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Cash Dr, $678,000

  Discount on bonds payable Dr, $12,000

            To Bonds payable $690,000

(Being issuance of the bonds is recorded)

2. Bond interest expense $34,800

         To Discount on bonds payable $ 300 ($12,000 ÷ 40)

         To Cash $34,500 ($690,000 × 0.10 × 0.5)

(Being interest is recorded)

3. Bond interest expense Dr, $23,200

       To Discount on bonds payable $200 ($300 × 4 ÷ 6)

       To Bond interest payable $23,000 ($34,500 × 4 ÷ 6)

(Being accrue interest is recorded)

4. Bond interest payable Dr, $23,000

   Bond interest expense $11,600 ($23,200 ÷ 2)

            To Discount on bonds payable $100

           To Cash $34,500

(Being interest is recorded)