Assume that on March 1 , 201 2, Yukon, C orp., issued 9% , 1 0-year bonds payable with maturity value of $700,000. The bonds pay interest on February 28 and August 31 , and Yukon amortizes any premium or discount by the straight-line method. Yukon’s fiscal year-end is September 30.

Requirements

1. If the market interest rate is 7.5% when Yukon, C orp., issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

2. If the market interest rate is 1 0% when Yukon, C orp., issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

3. Assume that the issue price of the bonds is $709,000. Journalize the following bonds payable transactions:

a. Issuance of the bonds on March 1 , 201 2.

b. Payment of interest and amortization of premium on August 31 , 201 2.

c. Accrual of interest and amortization of premium on September 30, 201 2.

d. Payment of interest and amortization of premium on February 28, 201 3.