Assume that on April 1, 2018, Yukon Corp. issued 10 percent, 10-year bonds payable with maturity value of $800,000. The bonds pay interest on March 31 and September 30, and Yukon amortizes any premium or discount using the straight-line method. Yukon’s fiscal year end is December 31.

Requirements

1. If the market interest rate is 9.25 percent when Yukon Corp. 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 10.5 percent when Yukon Corp. 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 $848,000. Journalize the following bonds payable transactions:

a. Issuance of the bonds on April 1, 2018

b. Payment of interest and amortization of premium on September 30, 2018

c. Accrual of interest and amortization of premium on December 31, 2018

d. Payment of interest and amortization of premium on March 31, 2019