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 1st of each year and mature on 1/1/2014. The market interest rate was 5.1% on the issuance date. Part 1: Requirements: 1. Calculate the issuance price of the bonds on 1/1/2012 and prepare the journal entries to record issuance. 2. Calculate Marietta’s 2012 interest expense on the bonds assuming that it uses the effective interest method. Why does Marietta’s 2012 interest expense differ from the $10,000 cash to be paid to bond investors on 1/1/2013? 3. Prepare Marietta’s 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 Marietta’s 1/1/2014 entries when the bonds mature. 5. Why doesn’t Marietta record a gain or loss on retirement? 6. Suppose that on 1/1/13, Marietta had purchased 100 of its outstanding bonds from investors. Assume that the market interest rate on the date of purchase was 6%. Calculate the gain/loss to Marietta from the bond purchase. 7. How does the bond repurchase affect Marietta’s balance sheet and income statement? Part 2 Requirements: 1. Suppose that Allison Company purchased 100 of the Marietta bonds on 1/1/2012 with the intent to hold them until maturity. How much did Allison pay for the bonds? What entry should be made to record the purchase? 2. How much interest income should Allison accrue in year 2012 on its investment in Marietta bonds? 3. What accounting entries should Allison Company make in connection with its investment in Marietta bonds in years 2012, 2013, and 2014? 4. Suppose that Allison sold the 100 bonds to Marietta on 1/1/13 when the interest rate was 6%. What entries should Allison make on 1/1/13? Why does Allison record a loss on its sale? 5. Suppose that Allison made the decision to sell the Marietta bonds on 12/3/12. How would this have changed your answer?