1. Calculate the proceeds from the bond issue and show in good form Donnie's journal entry to record the transaction on October 1, 2013. 2. Prepare in good form a partial Statement of Financial Position as at December 31, 2013 for Donnie Ltd., to show how the outstanding debentures are presented. 3. Prepare the journal entry to record the transaction on March 31, 2014.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Donnie Ltd. issued 10-year, $81 million face value debentures on October 1, 2013. The bonds mature on September 30, 2023. The annual stated (coupon) rate is 5%, and interest must be paid semi-annually on March 31 and September 30. The annual market rate was 4% for similar bonds at the time of issuance. Donnie's fiscal year ends on December 31. Donnie uses the effective interest method, in accordance with GAAP requirements.
Required (Round all numbers to the nearest dollar). Use Excel to solve the exercise
1. Calculate the proceeds from the bond issue and show in good form Donnie's
2. Prepare in good form a partial
3. Prepare the journal entry to record the transaction on March 31, 2014.
4. Assume that Donnie redeems 70% of the bonds for cash "at 101" immediately after paying the interest on March 31, 2014. Answer the following questions based on this assumption.
a) How much interest will be paid in total for the entire ten-year period, i.e., from October 1, 2013 to September 30, 2023? Journal entries are not required.
b) How much interest expense will be incurred in total for the entire ten-year period, i.e., from October 1, 2013 to September 30, 2023? Journal entries are not required.
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