McDermott Co. issues $250,000 worth of 8.5% bonds on January 1, 20x2 which will mature on December 31, 20x4. The bonds are issued to yield 10% Interest will be paid semi-annually on June 30 and December 31. Required: a. Will this bond sell at a premium of a discount? How do you know BEFORE calculating the price? It will sell at a discount because the market rate is higher than the coupon rate b. Will the carrying value increase or decrease over the life of the bond. How do you know BEFORE calculating the price? it will go up because when bonds are issued at discount the carrying value goes up c. Will the interest expense increase or decrease over the life of the bond. How do you know BEFORE calculating the price? ? The interest expense will go down because bonds issued at discount will cause the discoint on bonds to decrease and interest expense will increase d. Calculate the purchase price of the bonds $ 250,000.00 9% Face value Stated Rate # of Years Effective interest rate Interest payments Present value of the interest payments Present value of the maturity Price of bond 10% Factors PV of $1 PV of OA e. Before doing any additional journal entry calculations, what will be the total interest expense over the life of the bonds? f. Record all journal entries necessary from the date of issue until the maturity date. 1/1/X2 6/20/X2 12/31/x2 6/30X G/ 102 12/31/2 12/31/3 5/2016 Bonds payable Carrying Valu 12/31/X3 6/30/x4 12/31/24