Analyzing and journalizing bond transactionsOn January 1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bonds payable with face value of $200,000. The bonds pay interest on June 30 and December 31.RequirementsIf the market interest rate is 5% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.If the market interest rate is 8% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.The issue price of the bonds is 93. Journalize the following bond transactions:a. Issuance of the bonds on January 1, 2018.b. Payment of interest and amortisation on June 30,2018.c. Payment of interest and amortization on December 31,2018.d. Retirement of the bond at maturity on December 31,2037, assuming the last interest payment has already been recorded.

1. If the market interest rate is 5% when DCU issues its 7% bonds, the bonds will be priced at a…

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Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.15MCE

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Analyzing and journalizing bond transactions

On January 1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bonds payable with face value of $200,000. The bonds pay interest on June 30 and December 31.

Requirements

If the market interest rate is 5% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
If the market interest rate is 8% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
The issue price of the bonds is 93. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortisation on June 30,2018.

c. Payment of interest and amortization on December 31,2018.

d. Retirement of the bond at maturity on December 31,2037, assuming the last interest payment has already been recorded.

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