Question

# Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler...

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.

 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