On March 1, 19X6, Hi-Tech Recording Studio issues 7 3/4-percent, 10-year notes payable with a face value of \(\$ 300,000\). The notes pay interest on February 28 and August 31, and Hi-Tech amortizes premium and discount by the straight-line method.

\section*{Required}

1. If the market interest rate is \(81 / 2\) percent when Hi-Tech issues its notes, will the notes be priced at par, at a premium, or at a discount? Explain.

2. If the market interest rate is 7 percent when Hi-Tech issues its notes, will the notes be priced at par, at a premium, or at a discount? Explain.

3. Assume that the issue price of the notes is 101. Journalize the following note payable transactions:

a. Issuance of the notes on March 1, 19X6.

b. Payment of interest and amortization of premium on August 31, 19X6.

c. Accrual of interest and amortization of premium on December 31, 19X6.

d. Payment of interest and amortization of premium on February 28, 19X7.

4. Check your recorded interest expense for the year ended February 28, 19X7, using as a model the supplement to the summary problem on page 649.
5. Report interest payable and notes payable as they would appear on the Hi-Tech balance sheet at December 31, 19X6.