Question

P14-34A Analyzing and journalizing bond transactions On January 1, 2016, Agricultural Credit Union (ACU) issued 7%, 20-year bonds payable with face value of $600,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 104. 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

Answer 1

	Par Value of the bonds =		$6,00,000.00
	Issue price of the bond ($600,000 X 1.04)		$6,24,000.00
	Premium on issue of Bonds		$24,000.00
	Coupon amount @ 7% =		$42,000.00
	Coupon amount half yearly @ 7%/2 = 3.5 %		$21,000.00
	Interest amortized = $ 24,000 / 40 Periods =		$600.00	Per 6 Months
	Answer =1)
	Working Notes: for calculation of the interest expenses
		Interest Expenses of June 30, 2016 =
		Coupon Amount =	$21,000
		Less : Amortization value	$600
		Total interest expesnes	$20,400
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Jan, 01 2016	Cash	$                       6,24,000
		To 7% Bonds		$             6,00,000
		To Premium on issue of Bonds		$                24,000
		(to record the issuance of the bonds)
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June, 30 2016	Interest Expenses	$                           20,400
		Premium on Issue on Bonds	$                                 600
		To Cash		$                21,000
		(To Record the interest expenses )
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec, 31 2016	Interest Expenses	$                           20,400
		Premium on Issue on Bonds	$                                 600
		To Cash		$                21,000
		(To Record the interest expenses )
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec, 31 2035	7% Bonds	$                       6,00,000
		To Cash		$             6,00,000
		(To Record the payment of retirement of bonds )