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On January1, 2016, Teacher Credit Union (TCU) issued 8 %, 20-year bonds payable with face value of $ 400,000. The bonds pay interest on June

On January1, 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.

Requirement 1.

If the market interest rate is 6 % when TCU issues itsbonds, will the bonds be priced at face value, at apremium, or at a discount? Explain.

The 8 % bonds issued when the market interest rate is 6 % will be priced at (select correct answer: a discount, a premium, or face value). They are (select correct answer: attractive or unattractive) in this market, so investors will pay (select correct answer: face value, less than face value or more than face value) to acquire them.

Requirement 2.

If the market interest rate is 9 % when TCU issues itsbonds, will the bonds be priced at facevalue, at apremium, or at adiscount? Explain.

The 8 % bonds issued when the market interest rate is 9 % will be priced at (select correct answer: a discount, a premium or face value). They are (select correct answer: attractive or unattractive) in thismarket, so investors will pay (select correct answer: face value, less than face value or more than face value) to acquire them.

Requirement 3. The issue price of the bonds is 96

.

Journalize the bond transactions. (Assume bonds payable are amortized using thestraight-line amortization method. Record debitsfirst, then credits. Select explanations on the last line of the journal entry. Round your answers to the nearest wholedollar.)

a. Journalize the issuance of the bonds on January 1, 2016

Date

Accounts and Explanation

Debit

Credit

b. Journalize the payment of interest and amortization on June 30, 2016

Date

Accounts and Explanation

Debit

Credit

c. Journalize the payment of interest and amortization on December 31, 2016

Date

Accounts and Explanation

Debit

Credit

d. Journalize the retirement of the bond at maturity on December 31, 2035 (Assume interest through December 31, 2035has already been paid and recorded.)

Date

Accounts and Explanation

Debit

Credit

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