On February 1, 2021, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2041 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi’s fiscal year ends December 31.1. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2018.2. Prepare the journal entry to record interest on July 31, 2018 (at the effective rate).3. Prepare the adjusting entry to accrue interest on December 31, 2018.4. Prepare the journal entry to record interest on January 31, 2019.

cash          731,364  debit

discount on BP 68,636 debit

           bonds payable800,000 credit

interest expenst 36568.2   debit

discount on BP568.2  credit

cash            36000 .00 credit

--first interest payment---

interest expense36596.61 debit

discount on BP   596.61  credit

cash         36000.00  credit

--secodn interest payment--

Explanation:

procceds731,364

face value800,000

discount on bonds payable-68,636

first interest payment:

carrying value x market rate:

731,364 x 0.05 = 36568.2

cash outlay:

800,000 x 0.045 = 36,000

the difference wil lbe the amortization on the discounts

second interest payment:

carrying value will be the previous one plus the amortization

(731,364 + 568.2)  x 0.05 = 36,596.61

cash outlay will be always the same 36,000

and the difference amortization

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