Question

On 1 January Petal Ltd issued $98,000 9% unsecured notes at face value.

Interest is payable half-yearly on 1 July and 1 January. Interest is not accrued on 30 June. Petal Ltd's year-end is 31 December.   

Required

Prepare journal entries to record these events:

(a) the issue of the unsecured notes.(b) the payment of interest on 1 July.

(c) After paying interest for the year, Petal Ltd redeemed $134,000 face value, 13% debentures on 30 June 2016 at 103The carrying amount of the debentures at the redemption date was $134,000

The debentures pay half-yearly interest, and the interest payment due on 30 June 2016 has been made and recorded.Prepare the appropriate journal entry for the redemption of the debentures.

(Enter debit entries first followed by credit entries.Please include Dr and Cr as appropriate. Narrations are not required).

Answer 1

(a) 01/ January

Bank Account. Dr. $98,000

To 9% unsecured notes. $98,000

(b) 01/July

Interest expense A/c. Dr. $ 4,410

To Bank Account. $ 4,410

(c) 30/ June Due entry for interest

Interest expense a/c. Dr. $ 8710

To interest payable. $8710

($134000*13%*6/12)

Payment entry

Interest payable a/c. Dr. $8710

To Bank Account. $8710

(Repeat above two entry for next half year also)

Entry for redemption

13% debentures account. Dr. $134,000

Premium on redemption. Dr. $4020

To Bank account. $ 1,38,020