14-1

Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $7,700,000 of 4-year, 10% bonds at a market (effective) interest rate of 12%, receiving cash of $7,221,846. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

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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.

blank	Accounts PayableBonds PayableCashInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableBonds Payable	Bonds Payable	Bonds Payable

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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.

blank	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableCashInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash

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

blank	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableCashInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash

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3. Determine the total interest expense for Year 1. Round to the nearest dollar. $fill in the blank 98154cfd3fa7004_1

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?

YesNoYes

5. Compute the price of $7,221,846 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	$fill in the blank 98154cfd3fa7004_3
Present value of the semiannual interest payments	fill in the blank 98154cfd3fa7004_4
Price received for the bonds	$fill in the blank 98154cfd3fa7004_5