n 1 July 2021 Michael Ltd. issues $1 million in five – year debentures that pay interest each six months at a coupon rate of 10% per annum. At the time of issuing the securities, the market requires a rate of return of 12% per annum . Interest expense is determined using the effective-interest method. Required: Determine if the issuance of the debenture is at premium or discount? Determine the issue price of the debentures? Prepare journal entries at issue date on 1 July 2021 (assuming the debentures are issued privately)? Pass the journal entry for the first interest payment ?
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:
On 1 July 2021 Michael Ltd. issues $1 million in five – year debentures that pay interest each six months at a coupon rate of 10% per annum. At the time of issuing the securities, the market requires a
Required:
Determine if the issuance of the debenture is at premium or discount?
Determine the issue price of the debentures?
Prepare journal entries at issue date on 1 July 2021 (assuming the debentures are issued privately)?
Pass the
Step by step
Solved in 2 steps
