BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Solutions

Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Bond discount entries for bonds payable transactions, interest method of amortizing bond discount

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.

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 interest method. Round to the nearest dollar.

b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the interest method. Round to the nearest dollar.

3. Determine the total interest expense for Year 1.

1.

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization methodit is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

1.

To prepare: Journal entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1

Explanation

Explantion:

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

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

Table (1)

Working note:

Calculate discount on bonds payable...

2(a)

To determine

To prepare: Journal entry to record first interest payment and amortization of bond discount on December 31, Year 1.

3.

To determine
The amount of total interest expense for Year 1.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are the differences between Internal and external recruiting?

Foundations of Business (MindTap Course List)

What are footings in accounting?

College Accounting (Book Only): A Career Approach

BOND VALUATION Nungesser Corporation's outstanding bonds have a 1,000 par value, a 9% semiannual coupon, 8 year...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

In the formula for calculating interest, how is time computed?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)