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Bond Issue, Interest Expenses - Journal Entry

On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $400,000. The bonds sold for $392,000 and mature on February 28, 2036 (25 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31.

1. Prepare the journal entry to record interest on August 31, 2011.

2. Prepare the journal entry to accrue interest on December 31, 2011. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

3. Prepare the journal entry to record interest on February 28, 2012. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Solution Preview

Workings....

The Journal Entry on March 1, 2011 will be

Debit Cash $392,000
Debit Discount on Bonds $8,000
Credit 14% Bonds Payables $400,000

Since discount is amortised on straight line basis, a fixed amount will be amortised when coupon payment are made. The total no. of coupon payments are 50 (25 years * 2 payment).

Discount to be ...

Solution Summary

The solution provides for journal entry to record interest, bond issue for Stratford Lighting.

$2.19