Bond Discount, Entries for Bonds Payable Transactions On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:
For all journal entries, if an amount box does not require an entry, leave it blank.
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 20Y1.
20Y1 July 1 Cash
Discount on Bonds Payable
Bonds Payable
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:
a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar.
20Y1 Dec. 31 Interest Expense
Discount on Bonds Payable
Cash
Feedback
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
b. The interest payment on June 30, 20Y2, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar.
20Y2 June 30 Interest Expense
Discount on Bonds Payable
Cash
Compute the price of $42,309,236 received for the bonds by using the present value tables in Appendix A. Round your PV values to 5 decimal places and the final answers 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 $