Options for Requirement 2 are the same as options for Requirement 1 Question Hel

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Options for Requirement 2 are the same as options for Requirement 1 Question Help Assume that on April 1, 2016, Yukon, Corp, issues 10 percent, 10-year bonds payable with matuity value of $800,000 The bonds pay interest on March 31 and September 30, and Yukon amortzes any premium or discount by the straight-line method. Yukon's fiscal year-end is December 31 Read the reuremer Requirement 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 dscount? The 10 percent bonds issued when the market interest rate is 9.25 percent will be priced at They a his market, so toacquire them. investors wil pay Requirement 2. If the market interest rate is 10.5 percent when Yukon Corp. issues its bond The 10 percent bonds issued when the market interest rate is 10.5 percent will be priced at pr (matunity) value a dscount pw.at a premmor adscount? investors will pay 1o acquire them. Requirement 3. Assume that the issue price of the bonds is $848,000. Journalize each of the bonds payable transactions (Do not round any intermediary computations, but then round all amounts you input into the journal entry tables to the nearest whole dolar. Reoord debits ierst then credits Exclude explanations from any journal entries a Issuance of the bonds on April 1, 2016 Journal Entry Debit Apr 1, 2016 b. Payment of interest and amortization of premium on September 30, 2016 Journal Entry Sep 30, 2016 e. Accrual of interest and amorization of premium on December 31, 2016 Journal Entry Date Debit Dec 31, 2016 d. Payment of interest and amortization of premium on March 31, 2017 Journal Entry Date Debit Credit Mar 31, 2017 Choose from any list or enter any number in the input fields and then continue to the next question

Explanation / Answer

Requirement 1:

The 10 percent bonds issued when the market interest rate is 9.25 percent will be priced at a premium. They are attractive in this market, so investors will pay more than maturity value to acquire them.

Requirement 2:

The 10 percent bonds issued when the market interest rate is 10.5 percent will be priced at a discount. They are unattractive in this market, so investors will pay less than maturity value to acquire them.

Requirement 3:

Date Accounts Debit Credit a. April 1, 2016 Cash 848000 Bonds payable 800000 Premium on bonds payable 48000 b. Sep. 30, 2016 Interest expense 37600 Premium on bonds payable (48000/10 x 1/2) 2400 Cash (800000 x 10% x 1/2) 40000 c. Dec. 31, 2016 Interest expense 18800 Premium on bonds payable (48000/10 x 3/12) 1200 Interest payable (800000 x 10% x 3/12) 20000 d. Mar. 31, 2017 Interest payable 20000 Interest expense 18800 Premium on bonds payable (48000/10 x 3/12) 1200 Cash (800000 x 10% x 1/2) 40000

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