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 $37,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $29,602,220. 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 29,602,220 Discount on Bonds Payable 7,397,780 Bonds Payable 37,000,000 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 interest method. Round to the nearest dollar. 20Y1 Dec. 31 Interest Expense Discount on Bonds Payable Cash Feedback 2a. Cash received on July 1, 20Y1 x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. 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 Feedback 2b. Cash received (- premium amortized Dec. 31, 20Y1) x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. 3. Determine the total interest expense for 20Y1. Round to the nearest dollar. $

Answer 1

Solution 1:
Journal Entries - Livingston Corporation
Event	Particulars	Debit	Credit
1	Cash Dr	$29,602,220.00
	Discount on bond payable	$7,397,780.00
	To Bond Payable		$37,000,000.00
	(To record issue of bonds)

Solution 2:
Journal Entries - Livingston Corporation
Event	Particulars	Debit	Credit
a	Interest expense Dr ($29,602,220*14%*6/12)	$2,072,155.00
	To Cash ($37,000,000*11%*6/12)		$2,035,000.00
	To Discount on bond payable		$37,155.00
	(To record semiannual interest payment and discount amortization)
b	Interest expense Dr [($29,602,220 + $37,155) * 14%*6/12]	$2,074,756.00
	To Cash ($37,000,000*11%*6/12)		$2,035,000.00
	To Discount on bond payable		$39,756.00
	(To record semiannual interest payment and discount amortization)

Solution 3:

Interest expense for 20Y1 = $2,072,155