Question

On January​ 1, 2018​,MechanicsCredit Union ​(MCU​)issued 8 %​,20​-yearbonds payable with face value of $ 200 comma 000.These bonds pay interest on June 30 and December 31. The issue price of the bonds is 106.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.

Answer 1

Answer:

A. Issuance of the bonds on January 1, 2018.

Dr Cash 212,000

    Cr Bonds payable 200,000

    Cr Premium on bonds payable 12,000

B. Payment of interest and amortization on June 30, 2018.

premium on bonds payable = $12,000 / 40 coupons = $300 per coupon

Dr Interest expense 7,700

Dr Premium on bonds payable 300

    Cr Cash 8,000

C. Payment of interest and amortization on December 31, 2018.

Dr Interest expense 7,700

Dr Premium on bonds payable 300

    Cr Cash 8,000

D. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Dr Bonds payable 200,000

    Cr cash 200,000