Question

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $2,700,000 of 9-year, 8% bonds at a market (effective) interest rate of 10%, receiving cash of $2,384,381. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required:

Journalize the entries to record the following: For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answer to the nearest dollar.

a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method.

b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method.

c.Determine the total interest expense for Year 1. Round to the nearest dollar.

D.Compute the price of $2,384,381 received for the bonds by using Table 1, Table 2, Table 3 and Table 4. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Answer 1

1)	Date	Account titles & Explanations				Debit	Credit
	1-Jul	Cash				2,384,381
		Discount on bonds				315,619
		bonds payable					2,700,000
2-a)	31-Dec	interest expense				125534
		discount on bonds					17534
		cash					108000
2-b)	30-Jun	interest expense				125534
		discount on bonds					17534
		cash					108000
3)		total interest expense for year 1				125534
4)
		Principal				2,700,000
		interest				108000
		Calculation of bond issue price
		Where
		i=	5.00%
		t=	18
		principal		*	PV of $1 at 5.% for 18 yrs =
		2,700,000		*	0.41552		=	1121904
		interest		*	PV of ordinary annuity at 5.0%=
		108000		*	11.68959		=	1262477
		bond issue price						2384381
		so
		present value of the face amount						1121904
		present value of the semi-annual interest payments						1262477
		price received for bonds						2384381	answer