Banro Corp. issued a 4%, $150,000 bond that pays interest semi-annually each June 30 and December 31. The date of issuance was January 1, 2014. The bonds mature after four years. The market interest rate was 6%. Banro Corp.’s year-end is December 31.
1. Calculate the issue price of the bond.
2. Prepare a General Journal entry to record the issuance of the bonds.
3. Determine the total bond interest expense that will be recognized over the life of these bonds.
4. Prepare the first two years of an amortization table based on the effective interest method.
5. Present the journal entries Banro would make to record the first two interest payments.
Analysis Component: Now assume that the market interest rate on January 1, 2014, was 3% instead of 6%. Without presenting any specific numbers, describe how this change would affect the amounts presented on Banro’s financial statements.