1. Cleopatra Ltd offers $400 million of debentures, which is payable on application. The Interest rate on debentures is 8.5% per annum, payable annually. By 15 March 2020, application is received for $450 million debenture. The debentures are allotted on 1May2020, which coincides with Cleopatra Ltd’s financial year-end. Additional debenture application money is returned on 1June2020.

Required:

Prepare the journal entries to record the issue of the debenture on 1 May2020and annual interest payments on 30April2021 and 30 April 2022.

2. (a) Identify five differences between ordinary shares and debentures.

(b) On 1 July 2018 Maleka Ltd issues $6 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the investors required rate of return was 6 per cent. Interest expense is determined using the effective-interest method.

REQUIRED

(i) Determine the issue price of the debenture

(ii) Will the debenture be issued at premium or discount? Why?

(iii) Provide the journal entries at: 1 July 2018, 30 June 2019, & 30 June 2020

Answer rating: 100% (QA)

QUESTION 1 Journal Entries in the books of Cleopatra Ltd Date Account Debit in million Credit in million By March 15 2020 Bank Ac Dr 450 Debenture Application Money Ac 450 May 1 2020 Debenture Applica... View the full answer