a) What factors should be considered in determining the issue price of a debenture. b) On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 6 per cent. Interest expense is determined using the effective-interest method. Required: (i) (ii) Determine the issue price of the debenture. Provide the journal entries at: 1 July 2018, 30 June 2019, & 30 June 2020.

a) What factors should be considered in determining the issue price of a debenture. b) On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 6 per cent. Interest expense is determined using the effective-interest method. Required: (i) (ii) Determine the issue price of the debenture. Provide the journal entries at: 1 July 2018, 30 June 2019, & 30 June 2020.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

a) What factors should be considered in determining the issue price of a debenture.
b) On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six
months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a
rate of return of 6 per cent. Interest expense is determined using the effective-interest method.
Required:
(i)
(ii)
Determine the issue price of the debenture.
Provide the journal entries at:
1 July 2018, 30 June 2019, & 30 June 2020.

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