Question

In: Accounting

On 1 January Petal Ltd issued $98,000 9% unsecured notes at face value. Interest is payable...

On 1 January Petal Ltd issued $98,000 9% unsecured notes at face value.
Interest is payable half-yearly on 1 July and 1 January. Interest is not accrued on 30 June. Petal Ltd's year-end is 31 December.

Required

Prepare journal entries to record these events:

(a) the issue of the unsecured notes.

(b) the payment of interest on 1 July.
(c) After paying interest for the year, Petal Ltd redeemed $134,000 face value, 13% debentures on 30 June 2016 at 103

The carrying amount of the debentures at the redemption date was $134,000
The debentures pay half-yearly interest, and the interest payment due on 30 June 2016 has been made and recorded.

Prepare the appropriate journal entry for the redemption of the debentures.

(Enter debit entries first followed by credit entries.Please include Dr and Cr as appropriate. Narrations are not required).

Expert Solution

Answer

journal entry in the books of Petal Limited

Date

particulars debit credit

Jan 1

july 1

june 30

Cash a/c Dr. $98000

To Unsecured notes $98000

( issued unsecured notes)

--------------------------------------------------------------------------------------------------------

Interest expense a/c Dr. $4410

To Cash a/c $4410

(9% interest on unsecured note paid

for six month)

------------------------------------------------------------------------------------------------------

Debenture interest account Dr. $8710

To Cash A/c $8710

(13 % debenture interest paid)

------------------------------------------------------------------------------------------------------

Debenture account Dr. $134000

To Cash Account $134000

(redemption of 1300 debentures @103)

computation of interest on unsecured notes

interest = 98000* 9%* 6/12

= $4410

computation of debenture interest

debenture interest = 134000*13%* 6/12

= $8710

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