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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:
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- On January 1, 20x1, an entity issues bonds with a face amount of P8,000,000 for P8,600,000. The bonds mature on December 31, 20x4 and pay annual interest of 11% every December 31. The entity incurs transaction costs of P81,645. The effective interest rate adjusted for transaction costs is 9%. ◦Requirements: ◦A. Compute for the initial carrying amount of the bonds. ◦B. Compute for the net discount or net premium (including the effect of the bond issue cost) from the issuance on initial recognition. ◦C. Are the periodic interest payments greater than or less than the periodic interest expenses? ◦D. Prepare all the journal entries during the term of the bonds.On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P5,773,129. The bonds mature on December 31, 20x3 and pay annual interest of 14%. The effective interest rate is 8%. ◦Requirement: ◦Prepare the amortization table for the bonds.1. ABC, Inc. issued P1,000,000, 10% bonds to yield 8%. bond issuance costs were P10,000. How should ABC calculate the net proceeds to be received from the issuance? * a. Discount the bonds at the stated rate of interest. b. Discount the bonds at the stated rate of interest and deduct bond issuance costs. c. Discount the bonds at the market rate of interest. d. Discount the bonds at the market rate of interest and deduct bond issuance costs.
- On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P5,773,129. The bonds mature on December 31, 20x3 and pay annual interest of 14%. The effective interest rate is 8%. How much is the carrying amount of the bonds on December 31, 20x2?On September 1, 20x1, an entity issues bonds with face amount of P8,000,000 for P9,105,022, including accrued interest. The bonds are dated January 1, 20x1 and pay annual interest of 11% every December 31. The effective interest rate is 9%. ◦Requirements: ◦A. Compute for the initial carrying amount of the bonds. ◦B. Provide the entry on September 1, 20x1 to record the issuance of the bonds. ◦C. Compute for the interest expense in 20x1.On April 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P5,415,183, including accrued interest. The bonds are dated January 1, 20x1 and pay annual interest of 14% every December 31. The effective interest rate is 12%. Requirements: a. Compute for the interest expense in 20x1.
- On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P4,800,000. The bonds mature on December 31, 20x3 and pay annual interest of 10% every December 31. The entity incurs bond issue costs of P473,767. The effective interest rate adjusted for bond issue costs is 16%. Requirement: a. Are the periodic interest payments greater than or less than the periodic interest expenses? b. Prepare all the journal entries during the term of the bonds.On January 1, 20x2, Hoffman Company issued bonds with a face amount of $800,000 and a contract interest at the rate of 10%. The current market rate of interest is 12%. What is the issue (selling) price of these bonds?On January 1, 20x1, an entity issues 14%, 3-year, P5,000,000 bonds at a price that reflects a yield rate of 8%. Requirement: Compute for the issue price of the bonds.
- On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P4,800,000. The bonds mature on December 31, 20x3 and pay annual interest of 10% every December 31. The entity incurs bond issue costs of P473,767. The effective interest rate adjusted for bond issue costs is 16%. Requirement: a. Compute for the initial carrying amount of the bonds. b. Compute for net discount or a net premium (including the effect of the bond issue cost) from the issuance on initial recognition.1. Ruby Corp. is authorized to issue P 1,000,000 of 5-year bonds dated June 30, 20x2 with a stated interest of 8%. Interest on the bonds are payable semi-annually on June 30 and December 31 starting December 31, 20x2. The market rate for this type of transaction is 8%. What is the interest expense that shall be recognized for the year 20x2? (Show formula and solution) a. P 80,000 b. P 120,000 c. P 40,000 d. P 0 2. Magtatagumpay Company inaugurated a promotional campaign on January 2, 2029 to promote the salability of their product, Ghost Cereals. Magtatagumpay placed a coupon redeemable for a premium in each package of cereal sold at P200. Each premium, a limited edition water bottle cooling device, costs P25 and 10 coupons must be presented by a customer to receive a premium. Magtatagumpay estimated that only 70% of the coupons issued would be redeemed. For the 6 months ended July 31, 2019, the following transactions occurred: (Show formula and solution)…Qa.7. On June 30, 2025, Daniel Jackson Company issued $3,990,000.00 face value of 14%, 20-year bonds at $4,590,340.00, a yield of 12%. Jackson uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and -December 31. Prepare the journal entries to record the following transactions: 1.The issuance of the bonds on June 30, 2025. 2.The payment of interest and the amortization of the premium on December 31, 2025. 3.The payment of interest and the amortization of the premium on June 30, 2026. 4.The payment of interest and the amortization of the premium on December 31, 2026.