Question

on january 1, 2025, military credit union (mcu) issued 7%, 20 - year bonds payable with face value of $1,100,000. these bonds pay interest on june 30 and december 31. the issue price of the bonds is 102. journalize the following bond transactions.
view the bond transactions.
(assume bonds payable are amortized using the straight - line amortization method. record debits first, then credits. select explanations on the last line of the journal entry. round your answers to the nearest whole dollar.)
a. journalize the issuance of the bonds on january 1, 2025

date
accounts and explanation
debit
credit
jan 1, 2025
cash
1,122,000

bonds payable
1,100,000
premium on bonds payable
22,000

issued bonds at a premium
b. journalize the payment of interest and amortization on june 30, 2025

date
accounts and explanation
debit
credit
jun 30, 2025

Explanation:

Step1: Calculate the semi - annual interest payment

The face value of the bonds is \(F = \$1,100,000\), and the annual coupon rate is \(r=7\%\). The semi - annual coupon rate \(i=\frac{7\%}{2}=3.5\%\).
The semi - annual interest payment \(I = F\times i=\$1,100,000\times3.5\%=\$38,500\)

Step2: Calculate the premium on bonds

The bonds are issued at 102. So the issue price \(P = 1,100,000\times1.02=\$1,122,000\). The premium \(=P - F=\$1,122,000-\$1,100,000=\$22,000\)

Step3: Calculate the semi - annual amortization of premium

The bonds have a 20 - year life, so the number of periods \(n = 20\times2 = 40\)
The semi - annual amortization of premium \(A=\frac{22,000}{40}=\$550\)

Step4: Calculate the interest expense

The interest expense \(E=I - A\)
\(E = 38,500-550=\$37,950\)

Answer:

Date	Accounts and Explanation	Debit	Credit
	Premium on Bonds Payable	550
	Cash		38500
	(Record interest payment and premium amortization)