Question

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face value of $600,000. The bonds pay interest on June 30 and December 31. Read the requirements. Requirement 1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain. The 8% bonds issued when the market interest rate is 7% will be priced at a premium . They are attractive in this market, so investors will pay more than face value to acquire them. Requirement 2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain. The 8% bonds issued when the market interest rate is 9% will be priced at a discount . They are unattractive in this market, so investors will pay less than face value to acquire them. Requirement 3. The issue price of the bonds is 92. Journalize the bond transactions. (Assume bonds payable are amortized using the straight-line amortization method. Record debits first, then credits. Select explanations on the last line of the journal entry. Round your answers to the nearest whole dollar.) a. Journalize the issuance of the bonds on January 1, 2018. 0 Requirements Date Accounts and Explanation Debit Credit 2018 Jan. 1 Cash 1. If the market interest rate is 7% when NCU 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 NCU 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 92. Journalize the following bond transactions: a. Issuance of the bonds on January 1, 2018. b. Payment of interest and amortization 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. Print Done

Please answer all parts

Answer 1

Answer - Part - (1) -

The 8% bond issued when the market interest rate is 7% will be priced at a premium. The are attractive in this market, so investors will pay more than face value to acquire them.

.

Answer - Part - (2) -

The 8% bonds issued when the market interest rate is 9% will be priced at a discount. They are unattractive in this market, so investors will pay less than face value to acquire them.

.

Answer - Part - (3) -

	Date	Accounts and Explanation	Debit ($)	Credit ($)
a.	January 1, 2018	Cash [$600000 * 92%] Discount on Bonds Payable [Difference] Bonds Payable [Given in question] (Issued bonds at a discount)	552000 48000 -	- - 600000
b.	June 30, 2018	Interest Expense [Difference] Discount on Bonds Payable [($48000 / 20 years) * 6/12] Cash [($600000 * 8%) * 6/12] (Paid semiannual interest and amortized discount.)	25200 - -	- 1200 24000
c.	December 31, 2018	Interest Expense [Difference] Discount on Bonds Payable [($48000 / 20 years) * 6/12] Cash [($600000 * 8%) * 6/12] (Paid semiannual interest and amortized discount.)	25200 - -	- 1200 24000
d.	December 31, 2037	Bonds Payable Cash (Retired bonds payable at maturity)	600000 -	- 600000