On 1 July 2018 BMW Ltd issues $2 million in 10-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 12 per cent. Interest expense is determined using the effective-interest method.
.
Formula for PV of $1 in n periods =1/(1+k)n
Formula for present value of annuity of $1 per period for n periods
= where, k is the discount rate expressed in decimal
Required:
(i) Determine the issue price of the debenture.
(ii) Provide the journal entries at 1 July 2018 and 30 June 2019.
Get Answers For Free
Most questions answered within 1 hours.