Buderup Plc Issues £9 Million in 12-Year,6%,semi-Annual Coupon Debentures (B) Second Interest Payment

question 51

Multiple Choice

Buderup Plc issues £9 million in 12-year,6%,semi-annual coupon debentures.The rate of return required by the market is 10% per annum.What are the journal entries to record the first and second payments of interest assuming that Buderup uses the effective-interest method to amortise any discount or premium (rounded to the nearest pound) ?

• A) (a) First interest payment
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 233451 & \\
• \hline \mathrm{Dr} & \text { Debentures } & 36549 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 270000 \\
• \hline
• \end{array}\)
• (b) Second interest payment
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 211397 & \\
• \hline \mathrm{Dr} & \text { Debentures } & 58603 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 270000 \\
• \hline
• \end{array}\)
• B) (a) First interest payment
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 270000 & \\
• \hline \mathrm{Dr} & \text { Debentures } & 36549 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 306549 \\
• \hline
• \end{array}\)
• (b) Second interest payment
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 270000 & \\
• \hline \mathrm{Dr} & \text { Debentures } & 249898 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 519898 \\
• \hline
• \end{array}\)
• C) (a) First interest payment
• \(\begin{array}{|r|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 325812 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 55812 \\
• \hline \mathrm{Cr} & \text { Cash } & & 270000 \\
• \hline & & & \\
• \hline
• \end{array}\)
• (b) Second interest payment
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 328603 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 58603 \\
• \hline \mathrm{Cr} & \text { Cash } & & 270000 \\
• \hline
• \end{array}\)
• D) (a) First interest payment
• \(\begin{array}{|r|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 270000 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 27906 \\
• \hline \mathrm{Cr} & \text { Cash } & & 242094 \\
• \hline
• \end{array}\)
• (b) Second interest payment
• \(\begin{array}{|r|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 270000 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 29301 \\
• \hline \mathrm{Cr} & \text { Cash } & & 240699 \\
• \hline
• \end{array}\)

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Definitions:

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Companies that compete within the same market for customers by offering similar products or services.

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Refers to the determination or establishment of the amount at which goods or services will be sold.

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A branch of mathematics and economics that studies strategic interactions among rational decision-makers.

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A card game played by one person or a metaphor for any activity done alone without the need for other participants.