Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $4,500,000 of 9-year, 8% bonds at a market (effective) interest rate of 10%, receiving cash of $3,973,969. 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. If an amount box does not require an entry, leave it blank.

	Accounts PayableBonds PayableCashInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -

2. Journalize the entries to record the following: 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.

	Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableCashInterest ExpensePremium on Bonds Payable	- Select -	- Select -

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

	Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableCashInterest ExpensePremium on Bonds Payable	- Select -	- Select -

3. Determine the total interest expense for Year 1. Round to the nearest dollar. $fill in the blank baaf04fd7fa9ff4_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?

YesNo

5. Compute the price of $3,973,969 received for the bonds by using the Present value at compound interest, and Present value of an annuity. (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 baaf04fd7fa9ff4_3
Present value of the semiannual interest payments	fill in the blank baaf04fd7fa9ff4_4
Price received for the bonds	$fill in the blank baaf04fd7fa9ff4_5