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QUESTION 4 (15 MARKS) Wide Angle Bhd is constructing a new office building at a cost...

QUESTION 4 Wide Angle Bhd is constructing a new office building at a cost of RM2 million.When building is in the final stage of completion, Wide Angle Bhd faces financial difficulties as the company needs a fund amounted RM450,000 to complete the construction. The management team of Wide Angle Bhd decides to issue bonds instead of shares since that is a way to raise capital without diluting the current shareholders' equity. The RM450,000 of 8%, 5-year bonds were issued on 1 January 2019 and pay interest semi-annually on each 1 January and 1 July, which the payment is starting on July 2019. The market rate of bonds yield 6%. The financial year ends on 30 September. Wide Angle Bhd uses the effective interest method to amortize bond premium or discount.

REQUIRED: (Show your workings. Round your answer to the nearest RM)

(a) Prepare the journal entry to record the issuance of the bonds on 1 January 2019.

(b) Prepare the journal entry to record the related transactions of bonds on 1 July 2019 and 30 September 2019.

(c) Assume that Wide Angle Bhd was unable to sell the bonds dated 1 January 2019 until 1 March 2019, two months after they are dated. Explain the accounting treatment to record issuance of the bonds between interest date and interest expenses on 1 July 2019.

Business   Accounting   
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Answer #1

a)

Date Particulars Debit $ Credit $
Cash $ 516,244
Bonds payable $ 450,000
Premium on issue of bonds $   66,244

b)

Date Particulars Debit $ Credit $
01-07-19 Premium on issue of bonds $     5,025
Interest expense $   30,975
Cash $   36,000
30-09-19 Premium on issue of bonds $     5,327
Interest expense $   30,673
Cash $   36,000

c)

Date Particulars Debit $ Credit $
01-03-19 Cash $ 521,407
Bonds payable $ 450,000
Premium on issue of bonds $   66,244
Accrued interest $     5,163

For any clarification, please comment. Kindly Up Vote!

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