Question

OGOYA Ltd is a fast-growing company in need of new financing to fund its expansion plans. It is hoping to raise $10 million dollars from a debt issuance. It is considering the following options:

A Issue 2-year 8% debentures at par on January 1, 2019. Interest payments are made annually at the end of each year. The debenture matures on December 31, 2020.

B Issue 2-year 4% convertible debentures at par on January 1, 2019. The debentures can be converted into 10 million $1 shares at maturity on December 31, 2020. Interest payments are made annually at the end of each year. Without the conversion feature, the debenture would be priced the same as option A.

Question show the journal entries for A and B from 1 january 2019 to 31 December 2020 the face value 10 million

Answer 1

A) Journal entries for debt issuance in the books of OGOYA Ltd

(B) Journal entries for debt issuance in the books of OGOYA Ltd

Date	Particulars	Debit($)	Credit($)
1-1-2019	Bank A/c	10000000
	4% debenture application &allotment		10000000
	( 4% debenture issued at par)
1-1-2019	4% debenture application &allotment	10000000
	4% Debentures		10000000
	(4% debentures issued at par)
31-12-2019	Debenture Interest	400000
	Debenture holders		400000
	( Interest due for year)
31-12-2019	Debenture Holders	400000
	Bank		400000
	(Payment of interest)
31-12-2019	Statement of profit and loss	400000
	Debenture Interest A/c		400000
	(Debenture interest transferred to profit and loss account
31-12-2020	Debenture Interest	400000
	Debenture holders		400000
	( Interest due for year)
31-12-2020	Debenture Holders	400000
	Bank		400000
	(Payment of interest)
31-12-2020	Statement of profit and loss	400000
	Debenture Interest A/c		400000
	(Debenture interest transferred to profit and loss account
31-12-2020	4% Debentures A/c	10000000
	Debenture holders		10000000
	(Amount due on maturity)
31-12-2020	Debenture holders	10000000
	Equity Shares Capital		10000000
	(Issue of 10 million equity shares at $1 per shares if conversion is accepted)
31-12-2020	Debenture holders	10000000
	Bank A/c		10000000
	(Payment made to debenture holders if debentures not converted)

Date	Particulars	Debit($)	Credit($)
1-1-2019	Bank A/c	10000000
	8% debenture application &allotment		10000000
	( 8% debenture issued at par)
1-1-2019	8% debenture application &allotment	10000000
	8% Debentures		10000000
	(8% debentures issued at par)
31-12-2019	Debenture Interest	800000
	Debenture holders		800000
	( Interest due for year)
31-12-2019	Debenture Holders	800000
	Bank		800000
	(Payment of interest)
31-12-2019	Statement of profit and loss	800000
	Debenture Interest A/c		800000
	(Debenture interest transferred to profit and loss account
31-12-2020	Debenture Interest	800000
	Debenture holders		800000
	( Interest due for year)
31-12-2020	Debenture Holders	800000
	Bank		800000
	(Payment of interest)
31-12-2020	Statement of profit and loss	800000
	Debenture Interest A/c		800000
	(Debenture interest transferred to profit and loss account
31-12-2020	8% Debentures A/c	10000000
	Debenture holders		10000000
	(Amount due on maturity)
31-12-2020	Debenture holders	10000000
	Bank A/c		10000000
	(Payment made to debenture holders)