On July 1, Year 1, 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.Instructions1. 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.3. Determine the total interest expense for Year 1.4. 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?5. (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 dollar.

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Asked Dec 20, 2019
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On July 1, Year 1, 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.

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.
3. Determine the total interest expense for Year 1.
4. 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?
5. (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 dollar.

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Expert Answer

Step 1

1.

Prepare journal entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1.

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Post Debit ($) Credit ($) Account Title and Explanation Date Ref July 1, Year 1 42,309,236 Cash 3,690,764 Discount on Bonds Payable Bonds Payable 46,000,000 (To record issuance of bonds payable at discount)

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Step 2

2.

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Prepare joumal entry for first interest payment and amortization of discount on bonds. Post Debit (S) Credit (S) Account Title and Explanation Date Ref Interest Expense 2,392,269 Year 1 December 31 92,269 Discount on Bonds Payable ($3,690,7640 /40) Cash ($46,000,000*10%*6/12) (To record semiannual payment of interest and amortization of discount on bonds) 2,300,000 2.B. Prepare journal entry for second interest payment and amortization of discount on bonds. Credit Post Debit ($) Account Title and Explanation Date Ref (S) Interest Expense (7) 2,392,269 Year 2 92,269 June 30 Discount on Bonds Payable ($3,690,7640 /40) Cash ($46,000,000*10%*6/12) (To record semiannual payment of interest and amortization of discount on bonds) 2,300,000

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Step 3

3.

Determine the amount of total int...

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Interest paid in Year 1 Total interest expense for Year 1 +Discount amortized in Year1 = S2, 300, 000 +S92, 269 = S2, 392, 269

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