Question

On February 28,2018, Marlin Corp. issues 8%, 10-year bonds payable with a face value of $600,000. The bonds pay interest on February 28 and August 31. The company amortizes bond discount using the straight line method.

Requirement 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.

The 8% bonds issued when the market interest rate is 7% will be priced at [ a discount, a premium, par value]. They are [attractive, unattractive] in this market, so investors will pay [less than par value, more the par value, par value] to acquire them.

Requirement 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.

The 8% bonds issued when the market interest rate is 9% will be priced at [ a discount, a premium, par value]. They are [attractive, unattractive] in this market, so investors will pay [less than par value, more the par value, par value] to acquire them.

Requirement 3. Assume that the issue price of the bonds is 93. Journalize the following bonds payable transactions.

a. Record the issuance of the bonds on February 28, 2018.

b. payment of interest and amortization of the bond discount on August 31, 2018.

c. Accrual of interest and amortization of the bond discount on December 31, 2018 (fiscal year-end)

d. payment of interest and amortization of the bonds discount on February 28, 2019.

Requirement 4. Report interest payable and bonds payable as they would appear on Marlin Corp.'s balance sheet at December 31, 2018.

Answer 1