Spoton Co Ltd issues $5 million in 2-year,8 per cent,semi-annual coupon debentures to the public.The market required rate of return is also 8 per cent.The money is received on application and the debentures are allotted on the same day: 30 June 2003.What are the journal entries to record (a)the receipt of funds and allotment of debentures on 30 June 2003,(b)the payment of interest on 31 December 2003 and (c)the redemption of the debentures on 30 June 2005?
E) None of the given answers.

Question

Quizplus · Accepted Answer

(a) To record receipt of funds and allotment of debentures:
   Bank Account Dr. $5,000,000
     Debenture Account Cr. $5,000,000

(b) To record payment of interest:
   Interest Expense Dr. $200,000
     Interest Payable Cr. $200,000

(c) To record redemption of debentures:
   Debenture Account Dr. $5,000,000
     Bank Account Cr. $5,000,000
     (Assuming debentures are redeemed at their face value of $5 million)

Therefore, option C is the correct answer.

Spoton Co Ltd Issues $5 Million in 2-Year,8 Per Cent,semi-Annual