Question

In: Accounting

On January 1st, 2016, Professors Credit Union(PCU) issued 6%, 20-year bonds payable with face value of...

On January 1st, 2016, Professors Credit Union(PCU) issued 6%, 20-year bonds payable with face value of 900,000. The bonds pay interest on June 30th and December 31st. The issue price of the bonds is 105.

a. Issuance of bonds on January 1st, 2016

b. Payment of interest and amortization on June 30th, 2016

c. Payment of interest and amortization on December 31st, 2016

d. Retirement of bond at maturity on December 31st, 2035

Expert Solution

a) issue price of the bonds = (Face Value / 100 ) *105

= ( 900000 / 100 ) * 105

$ 945000

preimum on bonds = 945000 - 900000

= $ 45000

Straight line Amorti8zation = premium / term period of bonds

= 45000 / 20

= $ 2250 per year

=> 2250/2 = $ 1125 for Semi Annual period

b)

interesr payemnt for Semi Annual period = 900000 * 6% * (6/12)

= $ 27000

premium Amortization = $ 1125

interest Expense = 27000 - 1125

= $ 25875

c)

interesr payemnt for Semi Annual period = 900000 * 6% * (6/12)

= $ 27000

premium Amortization = $ 1125

interest Expense = 27000 - 1125

= $ 25875

	Journal Entries
Date	Accounts Name	Debit	Credit
1	Bond Issue

a	Cash	945000
	Premium on bonds		45000
	Bonds Payable		90000


b	Interest Expense	25875
	premium on bonds	1125
	cash		27000

c	Interest Expense	25875
	premium on bonds	1125
	cash		27000

d	bonds payable	900000
	Cash		900000

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