Question 3 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 rate of return of 12% per annum. Interest expense is determined using the effective- interest method. Required: (a) Determine if the issuance of the debenture is at premium or discount? ANSWER a): (b) Determine the issue price of the debentures ANSWER b): (c) Prepare journal entries at issue date on 1 July 2021 (assuming the debentures are issued privately)? ANSWER c): (d) Pass the journal entry for the first interest payment ANSWER d):

Question 3 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 rate of return of 12% per annum. Interest expense is determined using the effective- interest method. Required: (a) Determine if the issuance of the debenture is at premium or discount? ANSWER a): (b) Determine the issue price of the debentures ANSWER b): (c) Prepare journal entries at issue date on 1 July 2021 (assuming the debentures are issued privately)? ANSWER c): (d) Pass the journal entry for the first interest payment ANSWER d):

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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