1. Suppose a company issues bonds with a par value of $300,000, a life of five years, and a nominal annual rate of 6.50%. The market rate for these bonds is 3.8 per annum. The bonds pay interest every six months.

a. Determine the selling price of these bonds and make a journal entry to record their issue.

b. Make the journal entry to record the interest payment in the third semi-annual period.

c. Assume that on the same day that semiannual payment number six was made, the company called the bonds, paying 104 as the call price. Did you recognize a gain or loss on the transaction? If yes, state how much the gain or loss was.

2. Assume that the bonds in Exercise 1 do NOT pay periodic interest.

a. Determine the selling price of these bonds and make a journal entry to record their issue.

b. Make a journal entry to record the interest expense in the third year of the bonds.