Question

On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $70,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $56,004,200. 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.

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

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

Answer 1

Based on the information available in the question , we can answer as follows:-

JE 1:-

July 1, 20Y1	Cash A/c Dr.	56,004,200
	Discount on Bonds Payable A/c Dr.	13,995,800
	To Bonds Payable A/c		70,000,000
	(To record the issue of Bonds at discount)

JE 2:-

December 31, 20Y1	Interest Expense A/c Dr. ($56,004,200 * 14 % * 6/12)	3,920,294
	To Discount on Bonds Payable A/c		70,294
	To Cash A/c ($70,000,000 * 11% * 6/12)		3,850,000
	(To record the bond interest payment)

June 30, 20Y2	Interest Expense A/c Dr. ($56,074,494 * 14% * 6/12)	3,925,215
	To Discount on Bonds Payable A/c		75,215
	To Cash A/c ($70,000,000 * 11% * 6/12)		3,850,000
	(To record the bond interest payment)

JE 3:-

The total interest expense for 20Y1 is $3,920,294 based on the above calculations.

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