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On 1 july 2018 BMw ltd issues $2 million in 10 year debentures that pay interest each six months at a coupon rate of 10 percent. At the time of issuing the securities, the market requires a rate of return of 12 %. Interest expense is determined using the effective interest method.  Formula for PV of $1 in n periods = [1/1-(1+k)n/ k Formula for present value of annuity of $1 per period for n periods =[ 1-1/(1+k)n] / k  where k is the discount rate expressed in decimal Required 1. Determine the issue price of the debenture 2. Provide the journal entries at 1 July 2018 and 30 June 2019

On 1 july 2018 BMw ltd issues $2 million in 10 year debentures that pay interest each six months at a coupon rate of 10 percent. At the time of issuing the securities, the market requires a rate of return of 12 %. Interest expense is determined using the effective interest method.  Formula for PV of $1 in n periods = [1/1-(1+k)n/ k Formula for present value of annuity of $1 per period for n periods =[ 1-1/(1+k)n] / k  where k is the discount rate expressed in decimal Required 1. Determine the issue price of the debenture 2. Provide the journal entries at 1 July 2018 and 30 June 2019

FINANCIAL ACCOUNTING
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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On 1 july 2018 BMw ltd issues $2 million in 10 year debentures that pay interest each six months at a coupon rate of 10 percent. At the time of issuing the securities, the market requires a rate of return of 12 %. Interest expense is determined using the effective interest method. 
Formula for PV of $1 in n periods = [1/1-(1+k)n/ k

Formula for present value of annuity of $1 per period for n periods =[ 1-1/(1+k)n] / k 

where k is the discount rate expressed in decimal

Required

1. Determine the issue price of the debenture

2. Provide the journal entries at 1 July 2018 and 30 June 2019

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