Romero Corporation has $10,000,000 of 8 percent, 25-year bonds dated June 1, 2011, with interest payment dates of May 31 and November 30. The company’s fiscal year ends November 30. It uses the straight-line method to amortize bond premiums or discounts.

REQUIRED

1. Assume the bonds are issued at 103 on June 1. Prepare journal entries for June 1, 2011; November 30, 2011; and May 31, 2012. (Note: Round amounts to the nearest dollar.)

2. Assume the bonds are issued at 97 on June 1. Prepare journal entries for June 1, 2011; November 30, 2011; and May 31, 2012.

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