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.

journalize 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.)

date
dec. 31,
2025
accounts and explanation
interest expense
premium on bonds payable
cash
debit
37,050
550
credit
38,500
paid semiannual interest and amortized premium

journalize the retirement of the bonds at maturity on december 31, 2044, assuming the last interest payment has already been recorded.

date
dec 31
2044
accounts and explanation
debit
credit

bond transactions
a. issuance of the bonds on january 1, 2025
b. payment of interest and amortization on june 30, 2025
c. payment of interest and amortization on december 31, 2025
d. retirement of the bonds at maturity on december 31, 2044, assuming the last interest payment has already been recorded

Explanation:

Step1: Calculate the premium on bonds

The bonds are issued at 102. So the issue price is \(1,100,000\times102\% = 1,122,000\). The premium is \(1,122,000 - 1,100,000=22,000\).

Step2: Calculate the annual premium amortization

The bonds have a 20 - year life. Using the straight - line method, the annual premium amortization is \(\frac{22,000}{20}=1,100\). Since interest is paid semi - annually, the semi - annual premium amortization is \(\frac{1,100}{2} = 550\).

Step3: Calculate the semi - annual interest payment

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

Step4: Journal entry for bond retirement at maturity

When the bonds mature, the company pays the face value of the bonds. The journal entry is:
Debit: Bonds Payable \(1,100,000\)
Credit: Cash \(1,100,000\)

Answer:

Date	Accounts and Explanation	Debit	Credit
	Cash		\(1,100,000\)
	(To record the retirement of bonds at maturity)