Question

Company C issues $10 million of five-year, 10 per cent, semi-annual coupon debentures to the public (which pay interest each six months). The market also requires a rate of return of 10 per cent. Assume that the moneys come in and the debentures are allotted on the same day: 30 June 2015. Required: Provide the accounting entries at 30 June 2015, 31 December 2015 and 30 June 2020 to record the receipt of funds, the first payment of interest, and the redemption of the debentures

Answer 1

Solution :

Accounting Entry in the book of Company C

Date                                      Journal Entries

30^th June 2015                    Bank A/c Dr       $ 10 million

                                                                To 10 percent semi-annual coupon debentures A/c   $10 million

(Being 10% Semiannual Debentures issue to public on 30^th June, 2015)

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31^st Dec 2015                      Interest on debentures A/c Dr   $ 1 million

                                                                To Bank A/c            $ 1 million

(Being half yearly interest on debenture has been paid)

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30^th June 2020                    10 percent semi-annual coupon debentures A/c Dr $ 10 million

To Bank A/c $ 10 million

(Being Redemption of Debenture and paid to debenture holder )

We assumed that Interest entry already passed on 30th June, 2020 hence we ignore the same if passed interest entry on 30^th June, 2020 than interest entry will be same which was passed on 31^st December, 2015

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