On April 1, 2006, US Ultracom issued 7\%, 10-year bonds payable with maturity value of \(\$ 400,000\). The bonds pay interest on March 31 and September 30, and US Ultracom amortizes premium and discount by the straight-line method.

Requirements 

1. If the market interest rate is \(61 / 2 \%\) when US Ultracom issues its bonds, will the bonds be priced at maturity (par) value, at a premium, or at a discount? Explain.

2. If the market interest rate is \(8 \%\) when US Ultracom issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Fxplain.

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

a. Issuance of the bonds on April 1, 2006.

b. Payment of interest and amortization of premium on September 30 , 2006. 

c. Accrual of interest and amortization of premium on December 31, 2006.

d. Payment of interest and amortization of premium on March 31, 2007.