M&N company issues $20 million of ten-year, 7 per cent, semi-annual coupon debentures to public which...

M&N company issues $20 million of ten-year, 7 per cent, semi-annual coupon debentures to public which pay interest each six months. The market also requires a rate of return of 7 per cent. Assume that the monies come in and the debentures are allocated on the same day 30 June 2020. Required: a) Provide the accounting entries at 30 June 2020, 31 December 2020. Narrations are required. b) Discuss what factors may cause a debenture is issued at discount, premium and par value. (7 marks. Word limit for part b: minimum 120 to maximum 250 words) please provide a unique answer than other.

Expert Solution

1. Debenture are issued at a discout when it offers an interest rate lower than the prevailing interest rate in Market.

2. Debentures are issued at premium when it offeres and interst rate more than the prevailing interest rate in Market.

3. Debentures are issued at discount when it does not offer and more or less interest than prevailing market rate, it only offers what the market does.

Other factors that affect the debenture price are:

1. Inflation affects the price in nominal manner.

2. Credit rating of the organisation issuing the debentures affects the price of the debentures.

ekkarill92 answered 2 years ago

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