Question

ABC Ltd acquired $5 million of ten-year, 6 percent, annual coupon corporate bond (which pay interest annually).
At the time of ABC Ltd acquiring the bond, the market required a rate of return 7 percent per annum on such
bonds. ABC Ltd has an intention to hold the bond for cash flows and not to trade them. Assume that the moneys
paid out to acquire debentures were allotted on the same day: 30 June 2018.
Appendix A provides the present value of $1 in n periods.
Appendix B provides the present value of an annuity of $1 per period for n periods.
Required:
(a) Calculate the acquired price of the bonds at 30 June 2018. Show workings.
(b) Prepare a schedule as follows Please copy the schedule format to the paper.

Year ending	period	opening Present value balance	Interest income based on effective interest rate	Interest payment as cash based on the coupon rate	Principal repayment	Closing present value balance
30/06/2018	0
30/06/2019	1
30/06/2020	2
30/06/2021	3
30/06/2022	4
30/06/2023	5
30/06/2024	6
30/06/2025	7
30/06/2026	8
30/06/2027	9
30/06/2028	10

(c) Provide the relevant journal entries at 30 June 2018.
(d) Provide the journal entries for the receipt of interest and principal component at 30 June 2019. Show
workings.
(e) Provide the journal entries for the receipt of interest and principal component at 30 December 2028. Show
workings.

Answer 1