Question

Make sure do all parts I'll rate

Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $3,400,000 of 9-year, 10% bonds at a market (effective) interest rate of 12%, receiving cash of $3,031,861. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. For a compound transaction, if an amount box does not require an entry, leave it blank.

2. 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. Round your answer to the nearest dollar.

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

4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?

5. Compute the price of $3,031,861 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.

Present value of the face amount	$
Present value of the semi-annual interest payments	$
Price received for the bonds

Answer 1

	Date	Account Titles and Explanation	Debit	Credit
1	Jul. 1, Year 1	Cash	3031861
		Discount on bonds payable	368139
		Bonds payable		3400000
		(To record the issuance of bonds)
2a.	Dec. 31, Year 1	Interest expense	190452
		Discount on bonds payable ($368139/18)		20452
		Cash ($3400000 x 10% x 1/2)		170000
		(To record payment of interest)
b.	Jun. 30, Year 2	Interest expense	190452
		Discount on bonds payable ($368139/18)		20452
		Cash ($3400000 x 10% x 1/2)		170000
		(To record payment of interest)

3. Total interest expense for Year 1: $190452

4. Yes

5.

Present value of the face amount ($3400000 x 0.35034)	1191156
Present value of the semi-annual interest payments ($170000 x 11.68959)	1840692
Price received for the bonds	3031848
Rounding off difference	13