On 1/1/2012, Marietta Company issued 200 bonds payable having a total par value of $200,000. The bonds pay 5% interest on January 1^st of each year and mature on 1/1/2014. The market interest rate was 4.9% on the issuance date.

Required:

1. Calculate the issuance price of the bonds on 1/1/2012 and prepare the journal entries to record issuance.

2. Calculate Mariettas 2012 interest expense on the bonds assuming that it uses the effective interest method. Why does Mariettas 2012 interest expense differ from the $10,000 cash to be paid to bond investors on 1/1/2013?

3. Prepare Mariettas journal entries to record interest expense in years 2012 and 2013. What other journal entries if any are required on 12/31/13?

4. Prepare Mariettas 1/1/2014 entries when the bonds mature.

5. Why doesnt Marietta record a gain or loss on retirement?

Part 2 (Due Date 1/30/17)

6. Suppose that on 1/1/13, Marietta had purchased 100 of its outstanding bonds from the Allison Company. Assume that the market interest rate on the date of purchase was 5.5%. Calculate the gain/loss to Marietta from the bond purchase/retirement.

7. How does the bond repurchase affect Mariettas cash flow statement, balance sheet, and income statement in year 2013?