Shopko issues $185,000 of 12%, three-year bonds dated January 1, 2009, that pays interest semiannually on June 30 and December 31. They are issued at $189,620. Their market rate is 11% at the issue date.
1. Prepare the January 1, 2009, journal entry to record the bonds’ issuance.
2. Determine the total bond interest expense to be recognized over the bonds’ life.
3. Prepare an effective interest amortization table like Exhibit for the bonds’ first two years.
4. Prepare the journal entries to record the first two interest payments.
5. Prepare the journal entry to record the bonds’ retirement on January 1, 2011, at 97.
6. Assume that the market rate on January 1, 2009, is 13% instead of 11%. Without presenting numbers, describe how this change affects amounts reported on Shopko’s financial statements.