Assume that on April1, 2008, Roland Corp. issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30, and Roland amortizes any premium and discount by the straight-line method. Roland's fiscal year-end is December 31.
Requirements:
1. If the interest rate is 7 1/2% when Roland issues its bonds, will the bonds be priced at maturity value, at a premium, or at a discount? Explain.
2. If the market interest rate is 9% when Roland issues its bonds, will the bonds be priced at maturity, at premium, or at a discount? Explain.
3. Assume that the issue price of the bonds is 101. Journalize the following bonds payable transactions:
a) Issuance of the bonds on April 1, 2008
b) Payment of interest and amortization of premium on September 30, 2008