Question

Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount

On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $30,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $24,001,800. 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.

20Y1 July 1	Cash
	Discount on Bonds Payable
	Bonds Payable

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 interest method. Round to the nearest dollar.

20Y1 Dec. 31	Interest Expense
	Discount on Bonds Payable
	Cash

b. The interest payment on June 30, 20Y2, and the amortization of the bond discount, using the interest method. Round to the nearest dollar.

20Y2 June 30	Interest Expense
	Discount on Bonds Payable
	Cash

3. Determine the total interest expense for 20Y1. Round to the nearest dollar.
$

Answer 1

Amort Chart:
Date	Cash Int	Int exp	Discount	Unamortized	Carrying
			Amortized	discount	value of bonds
01.07.YR01			5998200	24001800
31.12 Yr1	1650000	1680126	30126	5968074	24031926
30.06. Yr2	1650000	1682235	32235	5935839	24064161
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01.07.Yr1	Cash account			2,40,01,800
	Discount on bonds payable		59,98,200
	Bonds payable				3,00,00,000
	(for issuance of bonds)
31.12 Yr01	Interest expense			16,80,126
	Cash account				16,50,000
	Discount on bonds payable			30,126
	(for interest expense incurred)
30.06 Yr02	Interest expense			16,82,235
	Cash account				16,50,000
	Discount on bonds payable			32,235
	(for interest expense incurred)
Total Interest expense:
40 payments of $ 1650,000 each	6,60,00,000
Maturity value			3,00,00,000
Total repayment			9,60,00,000
Less: Amount borrowed		2,40,01,800
Total Interest expense:		7,19,98,200