On March 1, 2013, Stratford Lighting issued 14% bonds, dated March 1, with a fac
ID: 2507030 • Letter: O
Question
On March 1, 2013, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000. The bonds sold for $294,000 and mature on February 28, 2033 (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.
Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2013
Prepare the journal entry to record interest on August 31, 2013
Prepare the journal entry to accrue interest on December 31, 2013.
Prepare the journal entry to record interest on February 28, 2014
1.Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2013
Explanation / Answer
1. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2013
Debit: Cash 294,000
Debit: Discount on bonds payable 6,000
Credit: Bonds payble 300,000
2. Prepare the journal entry to record interest on August 31, 2013
20 years, will be 40 semi-annual periods, bond discount 6,000/40 = 150 amortized per semiannual period
Interest paid = 300,000*.14*.5 = 21,000
Journal entry:
Debit: Bond interest expense 21,150
Credit: Discount on bonds payable 150
Credit: Cash 21,000
3. Prepare the journal entry to accrue interest on December 31, 2013.
21,000*4/6 = 14,000; 150*4/6 = 100
Debit: Bond interest expense 14,100
Credit: Discount on bonds payable 100
Credit: Bond interest payable 14,000
4. Prepare the journal entry to record interest on February 28, 2014
Debit: Bond interest payable 14,000
Debit: Bond interest expense 7,050
Credit: Discount on bonds payable 50
Credit: Cash 21,000
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