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P11-24A Mechanics Credit Union

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P11-24A Analyzing and journalizing bond transactions [30–40 min]
On March 1, 2012, Mechanics Credit Union (MCU) issued 7%, 20-year bonds
payable with maturity value of $300,000. The bonds pay interest on February 28
and August 31. MCU amortizes bond premium and discount by the straight-line
method.

Requirements
1. If the market interest rate is 6% when MCU 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 8% when MCU 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 95. Journalize the following bond transactions:

Issuance of the bonds on March 1, 2012.
Payment of interest and amortization of discount on August 31, 2012.
Accrual of interest and amortization of discount on December 31, 2012.
Payment of interest and amortization of discount on February 28, 2013.

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