Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $7,200,000 of 7-year, 10% bonds

Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $7,200,000 of 7-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $6,854,772. 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.

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 $6,854,772 received for the bonds (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 semiannual interest payments
Price received for the bonds $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services Plus Pearson MyLab Accounting With Pearson EText

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan

17th Global Edition

1292312106, 978-1292312101

More Books

Students also viewed these Accounting questions