Jose Corporation has $4,000,000 of 9 percent, 25-year bonds dated March 1, 2010, with interest payable on February 28 and August 31. The company’s fiscal year end in February 28. It uses the effective interest method to amortize both premiums or discounts. (Round amounts to the nearest dollar.)

Required

1. Assume the bonds are issued at 110.7 on March 1, 2010, to yield an effective interest rate of 8 percent. Prepare entries in Journal form for march 1, 2010, August 31, 2010, and February 28, 2011.

2. Assume the bonds are issued at 90.87 on March 1, 2010, to yield an effective interest rate of 10 percent. Prepare entries in journal form for March 1, 2010, August 31, 2010, and February 28, 2011.

3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.