On 1 January 2020, RA Bhd (RAB) issued a 20,000,000 five-year bond of RM1 par value at an issue price of 85 sen per unit. Cost of issuing the bond amount to RM1,000,000. The bond carries a coupon interest rate of 8% which is payable at the end of each year. The bond is redeemable at the end of Year 5 at RM1.10 per unit. The prevailing market interest rate for similar risk bonds was 10%.

Required:

(i) Calculate the effective interest rate 

(ii) determine the carrying amount of the bond on the initial recognition. 

(iii) produce an amortized schedule for the bond. 

(iv) show the journal entry to record the issuance of the bond, interest expense, amortization of discount and transaction cost (for year one and year two only), and redemption of the bond (on maturity). 

Answer rating: 100% (QA)

Under US GAAP bond issuance cost is shown as asset and amortized on a straight line basis over the p... View the full answer