Question

OBJ. 2, 3 ng equipment, issued ate of 11%, receiving PR 14-2B Bond discount, entries for bonds payable transactions On July 1, Year 1. Livingston Corporation, a wholesaler of manufacturing equipment $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%. rece cash of $42,309,236. Interest on the bonds is payable semiannually on December 31 June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar, . Determine the total interest expense for Year 1. 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? (Appendix 1) Compute the price of $42,309,236 received for the bonds by using the present value tables in Appendix A at the end of the text. Round to the nearest com

Answer 1

1)	Date	Account titles & Explanations				Debit	Credit
	1-Jul	Cash				42,309,236
		Discount on bonds				3,690,764
		bonds payable					46,000,000
2-a)	31-Dec	interest expense				2392269
		discount on bonds		(3,690,764/40)			92269
		cash	(46,000,000*5%)				2300000
2-b)	30-Jun	interest expense				2392269
		discount on bonds		(1071751/20)			92269
		cash	(46,000,000*5%)				2300000
3)		total interest expense for year 1				2392269
4)		Yes
5)
		Principal				46,000,000
		interest				2300000
		Calculation of bond issue price
		Where
		i=	5.50%
		t=	40
		principal		*	PV of $1 at 5.% for 40 yrs =
		46,000,000		*	0.11746		=	5403160
		interest		*	PV of ordinary annuity at 5.5%=
		2300000		*	16.04612		=	36906076
		bond issue price						42309236
		so
		present value of the face amount						5403160
		present value of the semi-annual interest payments						36906076
		price received for bonds						42309236	answer