(Learning Objectives 2, 5: Issuing bonds at a discount; amortizing by the effective interest method; reporting bonds payable on the balance sheet) On February 28, 20X0, Marlin Corp. issues 8%, 10-year bonds payable with a face value of $900,000. The bonds pay interest on February 28 and August 31. Marlin Corp. amortizes bonds by the effective interest method.

❙ Requirements 1. If the market interest rate is 7% when Marlin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when Marlin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

3. Assuming that the market rate is 7%, journalize the following bonds payable transactions.

a. Issuance of the bonds on February 28, 20X0.

b. Payment of interest and amortization of the bonds on August 31, 20X0.

c. Accrual of interest and amortization of the bonds on December 31, 20X0.

d. Payment of interest and amortization of the bonds on February 28, 20X1.

4. Report interest payable and bonds payable as they would appear on the Marlin Corp.

balance sheet at December 31, 20X0.