On 1 July 2018 MalekaLtd issues $6million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the timeof issuing the securities, the investors requiredrate of return was 6 per cent. Interest expense is determined using the effective-interest method. REQUIRED (i)Determine the issue price of the debenture (ii)Will thedebenture be issued at premium or discount?Why? (iii)Provide the journal entries at:1 July 2018, 30 June 2019, & 30 June 2020.
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 2018 MalekaLtd issues $6million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the timeof issuing the securities, the investors requiredrate of return was 6 per cent. Interest expense is determined using the effective-interest method.
REQUIRED
(i)Determine the issue price of the debenture
(ii)Will thedebenture be issued at premium or discount?Why?
(iii)Provide the
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