Reference no: EM132209037
Question - Analysing and journalising debenture transactions
On 1 March 2017, Mechanics Credit Union (MCU) issued 7%, 20-year debentures with maturity value of $300 000. The debentures pay interest on 28 February and 31 August. MCU amortises debenture premium and discount by the straight-line method.
Requirements -
1. If the market interest rate is 6.5% when MCU issues its debentures, will the debentures 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 debentures, will the debentures be priced at par, at a premium or at a discount? Explain.
3. Assume that the issue price of the debentures is 95. Journalise the following debenture transactions:
a. issue of the debentures on 1 March 2017
b. payment of interest and amortisation of discount on 31 August 2017
c. accrual of interest and amortisation of discount on 31 December 2017
d. payment of interest and amortisation of discount on 28 February 2018.