On March 1, 2007, Educators Credit Union (ECU) issued 6%, 20-year bonds payable with maturity value of
Question:
On March 1, 2007, Educators Credit Union (ECU) issued 6\%, 20-year bonds payable with maturity value of \(\$ 300,000\). The bonds pay interest on February 28 and August 31. ECU amortizes bond premium and discount by the straight-line method.
Requirements
1. If the market interest rate is \(5 \%\) when ECU issues its bonds, will the bonds be priced at maturity (par) value, at a premium, or at a discount? Explain.
2. If the market interest rate is \(7 \%\) when ECU issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 98 . Journalize the following bond transactions:
a. Issuance of the bonds on March 1, 2007.
b. Payment of interest and amortization of discount on August 31, 2007.
c. Accrual of interest and amortization of discount on December 31, 2007.
d. Payment of interest and amortization of discount on February 28, 2008.
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