On January 1, 2018, Teachers Credit Union issued 7%, 20-year bonds payable with face value of $500,000. The bonds pay interest on June 30 and December 31.

Fill in the blanks:

Requirement 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:

The 7% bonds issued when the market interest rate is 6% will be priced at (fill in blank with: discount, or premium or face value). They are ( fill in blank with: attractive or unattractive) in this market, so investors will pay (fill in blank with: face value, less than face value, or more than face value) to acquire them.

Requirement 2: If the market interest rate is 9% when Teacher Credit Union issues its bonds, will the bonds be priced at face value, at a premium or at a discount? Explain:

The 7% bonds issued when the market interest rate is 9% will be priced at (fill in blank with: discount, premium, face value). They are (fill in blank with: attractive or unattractive) in this market, so investors will pay ( fill in blank with: face value, more than face value, less than face value).

Requirement 3: The issue price of the bonds is 94. Journalize the bond transactions. (Assume bonds payable are amortized using the straight-line amortization method. Explain each Journal entry.

a.journalize the issuance of bonds on January 1, 2018

b. Journalize the payment of interest and amortization on June 30, 2018.

c. Journalize the payment of investment 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.