Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $4,500,000 of 6-year, 9% bonds at a market (effective) interest rate of 11%, receiving cash of $4,112,167. 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.

	Cash	fill in the blank 7a920ffe5ffc015_2	fill in the blank 7a920ffe5ffc015_3
	Discount on Bonds Payable	fill in the blank 7a920ffe5ffc015_5	fill in the blank 7a920ffe5ffc015_6
	Bonds Payable	fill in the blank 7a920ffe5ffc015_8	fill in the blank 7a920ffe5ffc015_9

Feedback

Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

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.

	Interest Expense	fill in the blank 26b8c1029021002_2	fill in the blank 26b8c1029021002_3
	Discount on Bonds Payable	fill in the blank 26b8c1029021002_5	fill in the blank 26b8c1029021002_6
	Cash	fill in the blank 26b8c1029021002_8	fill in the blank 26b8c1029021002_9

Feedback

Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

The straight-line method of amortization provides equal amounts of amortization over the life of the bond.

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

	Interest Expense	fill in the blank b490f6f98fc5f7f_2	fill in the blank b490f6f98fc5f7f_3
	Discount on Bonds Payable	fill in the blank b490f6f98fc5f7f_5	fill in the blank b490f6f98fc5f7f_6
	Cash	fill in the blank b490f6f98fc5f7f_8	fill in the blank b490f6f98fc5f7f_9

Feedback

Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

The straight-line method of amortization provides equal amounts of amortization over the life of the bond.

3. Determine the total interest expense for Year 1. Round to the nearest dollar. $fill in the blank 3b9ba7f70fe3fc6_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? Yes

5. Compute the price of $4,112,167 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 3b9ba7f70fe3fc6_3
Present value of the semiannual interest payments	fill in the blank 3b9ba7f70fe3fc6_4
Price received for the bonds	$fill in the blank 3b9ba7f70fe3fc6_5