On 1 July 2022 Bombo Ltd issues $2 million in six-year bonds that pay interest every 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. (PV tables are available at the end of this exam). Required Determine the issue price. Provide the journal entries at the dates below by showing relevant calculations in a table form. (i) 1 July 2022
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 2022 Bombo Ltd issues $2 million in six-year bonds that pay interest every six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a
Required
- Determine the issue price.
- Provide the
journal entries at the dates below by showing relevant calculations in a table form.
(i) 1 July 2022
Step by step
Solved in 3 steps with 3 images
