On January 1, 2016. Teacher Credit Union (TCU) issued 8%, 20-year bonds payable
ID: 2481918 • Letter: O
Question
On January 1, 2016. Teacher Credit Union (TCU) issued 8%, 20-year bonds payable with face value of $400,000. The bonds pay interest on June 30 and December 31. Requirements 1. If the market interest rate is 6% when TCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain. 2. If the market interest rate is 9% when TCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain. 3. The issue price of the bonds is 96. Journalize the following bond transactions: a. Issuance of the bonds on January 1, 2016. b. Payment of interest and amortization on June 30, 2016. c. Payment of interest and amortization on December 31, 2016. d. Retirement of the bond at maturity on December 31, 2035.Explanation / Answer
Answer:1 The bonds will issued at premium because YTM is less than coupon rate.
Answer:2 The bonds will issued at discount because YTM is greater than coupon rate.
Answer:3 a.
Cash A/C Dr. $384000
Discount on issue of bonds A/C Dr. $16000
To Bonds Payable A/c $400000
b. Interest expense A/C Dr. $16000
To Discount on issue of bonds A/C $400
To Cash A/c $15600
c. Interest expense A/C Dr. $16000
To Discount on issue of bonds A/C $400
To Cash A/c $15600
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