Question

M&N company issues $20 million of ten-year, 7 per cent, semi-annual coupon debentures to public which pay interest each six months. The market also requires a rate of return of 7 per cent. Assume that the monies come in and the debentures are allocated on the same day 30 June 2020. Required: a) Provide the accounting entries at 30 June 2020, 31 December 2020. Narrations are required. b) Discuss what factors may cause a debenture is issued at discount, premium and par value. (7 marks. Word limit for part b: minimum 120 to maximum 250 words)

Answer 1

a) Accounting entries

30th june 2020 Bank A/C dr

To 7% debentures A/C

( Being 7% debentures issued, interest to be paid semi annually)

b)

• if issued at discount

Bank a/c dr

Discount on issue of debentures a/c dr

To debentures a/c

( Being debentures issued at discount)

p&L a/c dr

To discount on issue of debentures a/c

( Being discount on issue of debentures charged to p&L a/c)

• If issued at premium

​​​​​​ Bank a/c dr

To debentures a/c

To premium on issue of debentures a/c

( Being debentures issued at premium)

• If issued at Parvalue

​​​​​Bank a/c dr

To debentures a/c

(Being debentures issued at par)