On February 28, 2014, Panorama Ltd. issues 7%, 10-year notes with a face value of $300,000. The notes pay interest on February 28 and August 31, and Panorama amortizes notes by the straight-line method.

Requirements

1. If the market interest rate is 6% when Panorama issues its notes, will the notes be priced at face value, a premium, or a discount? Explain.

2. If the market interest rate is 8% when Panorama issues its notes, will the notes be priced at face value, a premium, or a discount? Explain.

3. Assume that the issue price of the notes is 96. Journalize the following note payable transactions:

a. Issuance of the notes on February 28, 2014

b. Payment of interest and amortization of the bonds on August 31, 2014

c. Accrual of interest and amortization of the bonds on December 31, 2014

d. Payment of interest and amortization of the bonds on February 28, 2015

4. Report interest payable and notes payable as they would appear on Panorama's balance sheet at December 31, 2014.