On July 1, Year 1, Livingston Corporation, a wholesaler ofmanufacturing equipment, issued $3,000,000 of 6-year, 9% bonds at amarket (effective) interest rate of 10%, receiving cash of$2,867,050. Interest on the bonds is payable semiannually onDecember 31 and June 30. The fiscal year of the company is thecalendar year.
Required:
1. Journalize the entry to record the amount ofcash proceeds from the issuance of the bonds on July 1, Year 1. Fora compound transaction, if an amount box does not require an entry,leave it blank.
| Cash | | |
| Discount on Bonds Payable | | |
| Bonds Payable | | |
2. Journalize the entries to record thefollowing: For a compound transaction, if an amount box does notrequire an entry, leave it blank. Round your answer to the nearestdollar.
a. The first semiannual interest payment on December 31, Year 1,and the amortization of the bond discount, using the straight-linemethod.
| Interest Expense | | |
| Discount on Bonds Payable | | |
| Cash | | |
b. The interest payment on June 30, Year 2, and the amortizationof the bond discount, using the straight-line method.
| Interest Expense | | |
| Discount on Bonds Payable | | |
| Cash | | |
3. Determine the total interest expense forYear 1. Round to the nearest dollar.
$
4. Will the bond proceeds always be less thanthe face amount of the bonds when the contract rate is less thanthe market rate of interest?
Yes
5. Compute the price of $2,867,050 received forthe bonds by using Table 1, Table 2, Table 3 and Table 4. (Round tothe nearest dollar.) Your total may vary slightly from the pricegiven due to rounding differences.
| Present value of the face amount | $ |
| Present value of the semiannual interest payments | |
| Price received for the bonds | $ |
