Question

P14-34A (book/static) Question Help 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 prioed 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 . They are in this market, so investors will pay to acquire them. Click to select your answer(s) and then click Check Answer 5 parts 5 remaining Clear All Check Answer

Answer 1

Answers 0. If the market interest ik is 7.4. when NCU issues its bords, will the bonds be priced out face value, at a premium al discount :- *-n higher rate of interest compared to the market vates would fetch the investors a higher comount of interest. income * The investors would be willing to buy such bonds Since they would be receiving a highert amount of return; When an entity issuce bonds at a vale higher than that of -the marke route of interest.. . * the issuey would want to receive a higher amount of principle for such bends, to offset the higher rate do interest to be paid to the investors. * Thus, NCO'8.4. bords payable would be Priced higher (ie, premicem)-than that of the market price of the similar bonds which are being traded at /

-> The issuance de bonds by cality of a rate lower @ than that of the market could not attract the investors as they would get a higher rate of retum if they invest such amount in the markect. - Hence, to attract investors, comparies Sell bond oda Price less than the face value, and during the redemptions dy such bonds, -the investors generally get peich the entire face value of such bonds by the company. ~ Thees, NCO'S 84. bonds payable would be priced lower (iz, at discount Dothan that of the market price.ds the Similan boords which are being traded at 9.4. @cosh = $99 per bond x ($600,000) $100) - $92x Gooobonds To assume ,-face value per - $552,000 : ( ' bond = $100 ) Discount on Le $600,000 - 552.000 $48,000 Dati General Journal | Debit (6) ordik (f) Jau Lá 18 cash $5521000 Discount on Lends payable - $48.000 bonds payable $600,000

3(6). semir annual interest Cie, interest from Jan 1, 18 to san 20, 18) sem's annual terest - $600,000 X8% *(5) = $24,000 Amortisation de discount on bonds paepble semiannually = $48,000 x box -$1200 Camertization till Jun 20,18) Debitch creditch) $ 251200 - General Journal interest Expenses cash Discount on bonds payable 5041000 $11200 - Dec 30, 2018 Interest Expense Dati General Journal Debid (6) ereditch) $ 25,200 cach $24,000 Discount on bonds prepable $1,200 semí annud interest (ie, interest from Jun 30,2018 to Dec 31, 2018) $600,000x8.) --$24,000

Amortization of discount on bonds payable scmiannually = $48,000x zo. G'amortization till Del 39,2018) = $2,400. Amount of discount on bonds paypble amortised so-fox= $1, doo Remaining amount to be amortised on Dec 31,2018 = $2,400-$1,200 = $1,200. andet (6) Date Dec 312624 Accounts bandes payable Debitet $600000 I cach $600,000