QUESTION 1
On 1 July 2018 Bombo Ltd issues $ 2 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 market requires a rate of return of 6 per cent, interest expense is determined using the effective-interest method.
a) Determine the issue price
b) Provide the journal entries at
+ 1 July 2018
+ 30 June 2019
Hint:
Provide the journal entries at
a) July 1, 2018
Dr ________
Cr ________
b) June 30, 2019
Dr ________
Dr ________
Cr ________
Question 2
Superbank Ltd acquired some machinery at a cost of $2,000,000. As at 30 June 2018 the machinery had accumulated depreciation of $400,000 and an expected remaining useful life of four years.
On 30 June 2018 it was determined that the machinery could be sold at a price of $1,200,000 and that the costs associated with making the sale would be $50,000. Alternatively, the machinery is expected to be useful for another four years and it is expected that the net cash flows to be generated from the machine would be $390,000 over each of the next four years.
It is assessed that at 30 june 2018 the market would require a rate of return of 6 per cent on this type of machinery.
Required:
Determine whether any impairment loss needs to be recognised in relation to the machinery and, if so, provide the appropriate journal entry at 30 June 2018. Also, provide the journal entry to account for depreciation in 2019.
Hint:
a) Prepare the journal entries for the impairment loss as at June 30, 2018.
June 20, 2018
Dr ________
Cr ________
b) Prepare the journal entries for the depreciation in 2019.
Dr ________
Cr ________