On January 1, 2018, Professor's Credit Union (PCU) issued 6%,20-year bonds payable with face...

Free

80.2K

Verified Solution

Question

Accounting

On January 1, 2018, Professor's Credit Union (PCU) issued 6%,20-year bonds payable with face value of $700,000. The bonds payinterest on June 30 and December 31.

Requirement 1: If the market interest rate is 5%when PCU issues it's bonds, will the bonds be priced at face valueat a premium, or at a discount? Explain.The 6% bonds issued whenthe market interest rate is 5% will be priced at ___. Theyare _ in this market, so investors pay _ to acquirethem.
Requirement 2: If the market interest rate is7% when PCU issues its bonds, will the bonds be priced at facevalue, at a premium, or at a discount? Explain.
The 6% bonds issued when the market interest rate is 7% will bepriced at . They are in this market, so investors willpay ___ to acquire them.

Requirement 3: The issue rice of the bonds is 96.Journalize the bond transactions. (Assume bonds payable areamortized using the straight-line amortization method. Recorddebits first, then credits. Select answers to the nearest wholedollar.

a. Journalize the issues of bonds on January 1,2018
b. Journalize the payment of interest andamortization on June 30, 2018
c. Journalize the payment of interest andamortization on December 31, 2018
d. Retirement of the bond at maturity on December31, 2037, assuming the last interest payment has already beenrecorded.

Answer & Explanation Solved by verified expert

3.9 Ratings (677 Votes)

1
The 6% bonds issued when the market interest rate is 5% will be priced at premium. They are attractive in this market, so investors paywill pay more than the maturity value to acquire them.

2
The 6% bonds issued when the market interest rate is 7% will be priced at discount. They are unattractive in this market, so investors will pay less than maturity value to acquire them.

3
Jan-1-18	Cash	672000		=700000*0.96
	Discount on Bonds Payable	28000
	Bonds Payable		700000

Jun-30-18	Interest Expense	21700
	Discount on Bonds Payable		700	=28000/40
	Cash		21000	=700000*6%/2

Dec-31-18	Interest Expense	21700
	Discount on Bonds Payable		700
	Cash		21000

Dec-31-37	Bonds Payable	700000
	Cash		700000

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingOn January 1, 2018, Professor's Credit Union (PCU) issued 6%,20-year bonds payable with face value...On January 1, 2018, Professor's Credit Union (PCU) issued 6%,20-year bonds payable with face value of $700,000. The bonds payinterest on June 30 and December 31.Requirement 1: If the market interest rate is 5%when PCU issues it's bonds, will the bonds be priced at face valueat a premium, or at a discount? Explain.The 6% bonds issued whenthe market interest rate is 5% will be priced at _______. Theyare _______ in this market, so investors pay _______ to acquirethem.Requirement 2: If the market interest rate is7% when PCU issues its bonds, will the bonds be priced at facevalue, at a premium, or at a discount? Explain.The 6% bonds issued when the market interest rate is 7% will bepriced at ______. They are ______ in this market, so investors willpay _______ to acquire them.Requirement 3: The issue rice of the bonds is 96.Journalize the bond transactions. (Assume bonds payable areamortized using the straight-line amortization method. Recorddebits first, then credits. Select answers to the nearest wholedollar.a. Journalize the issues of bonds on January 1,2018b. Journalize the payment of interest andamortization on June 30, 2018c. Journalize the payment of interest andamortization on December 31, 2018d. Retirement of the bond at maturity on December31, 2037, assuming the last interest payment has already beenrecorded.