On January 1, 2014, Mechanics Credit Union (MCU) issued 7%, 20-year bonds payable with face value of

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On January 1, 2014, Mechanics Credit Union (MCU) issued 7%, 20-year bonds payable with face value of $ 300,000. The bonds pay interest on June 30 and December 31.

Requirements
1. If the market interest rate is 6% when MCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
2. If the market interest rate is 8% when MCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 95. Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2014.
b. Payment of interest and amortization on June 30, 2014.
c. Payment of interest and amortization on December 31, 2014.
d. Retirement of the bond at maturity on December 31, 2033.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Horngrens Financial and Managerial Accounting

ISBN: 978-0133255584

4th Edition

Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura

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