On 1 July 2008 Coledale Ltd issued $10 million in five year debentures that pay interest each six months at a coupon rate of 8%, with the first interest payment due on 31 December 2008. The debentures will mature on 30 June 2013, which is also the date of the final interest rate payment. At the time of the issue of the debentures, the market rate of return is 10%. Any discount or premium on issue is to be amortised on a straight line basis.
Required:
i. Determine the issue price of the debenture, calculate any premium or discount and amount of any related annual amortisation. Use present value tables.
ii. Provide the journal entries in the accounts of Coledale Ltd on the following dates:
1 July 2008
30 June 2013