On March 1, 2014, Shaw Systems Ltd. issues 8.5-percent, 20-year bonds payable with a maturity value of $5,000,000. The bonds pay interest on February 28 and August 31. Shaw Systems Ltd. amortizes premium and discount by the straight-line method.

Required

1. If the market interest rate is 8 percent when Shaw Systems Ltd. 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 8.875 percent when Shaw Systems Ltd. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

3. Assume the issue price of the bonds is 97.00. Journalize the following bond transactions:

a. Issuance of the bonds on March 1, 2014.

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

c. Accrual of interest and amortization of discount on November 30, 2014, Shaw Systems Ltd.'s year end.

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

4. Report interest payable and bonds payable as they would appear on the Shaw Systems Ltd. balance sheet at November 30, 2014.