Question

On March 1, 2018, Stratford Lighting issued 10% bonds, dated March 1, with a face amount of $780,000. The bonds sold for $768,000 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.

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

Answer 1

Mar-1-18	Cash	768000
	Discount on bonds payable	12000
	Bonds payable		780000
31-Aug-18	Interest expense	39300
	Discount on bonds payable		300	=12000/40
	Cash		39000	=780000*10%/2
31-Dec-18	Interest expense	26200
	Discount on bonds payable		200	=12000/40/6*4
	Interest payable		26000	=780000*10%/12*4
Feb-28-19	Interest expense	13100
	Interest payable	26000
	Discount on bonds payable		100	=12000/40/6*2
	Cash		39000	=780000*10%/2