Question

Question 2                                                                                                                                                            

BEXI company issues $15 Million five-year, 12 per cent, semi-annual coupon

debentures to the public which pays interest every six months. The market also

requires a rate of return of 12 per cent. Assume that all the money comes in and the

debentures are allocated on the same day, 30 June 2019.

Provide the accounting entries as at 30 June 2019, 31 December 2019 and 30 June

2024 to record:

1. The receipt of funds                                       
2. The first payment of interest                        (1 mark)
3. The redemption of the debentures           (1 mark)

Answer 1

	Date	Account titles and explanation	Debit	Credit
a.	30-Jun-19	Cash	$15,000,000
		Debentures		$15,000,000
		(cash received for issue of debentures)
b.	31-Dec-19	Interest expense	$900,000		(15000000*12%*6/12)
		Cash		$900,000
		(interest paid)
c.	30-Jun-24	Debentures	$15,000,000
		Cash		$15,000,000
		(debentures redeemed)
	* Since market rate and coupon rate of interest of the debentures are same The issue price itself is the carrying value.
	and as well as that, interest payment is equal to interest expense