Spoton Co Plc Issues €5 Million in 2-Year,8%,semi-Annual Coupon Debentures

question 23

Multiple Choice

Spoton Co Plc issues €5 million in 2-year,8%,semi-annual coupon debentures to the public.The market required rate of return is also 8%.The money is received on application and the debentures are allotted on the same day: 30 June 2013.What are the journal entries to record (a) the receipt of funds and allotment of debentures on 30 June 2013,(b) the payment of interest on 31 December 2013 and (c) the redemption of the debentures on 30 June 2015?

• A) (a) Application and allotment 30 June 2013
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Cash at bank } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash trust } & & 5000000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Application-debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 5000000 \\
• \hline
• \end{array}\)
• (b) Payment of interest 31 December 2013
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Interest expense } & 400000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 400000 \\
• \hline
• \end{array}\)
• (c) Redemption of debentures 30 June 2015
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 5000000 \\
• \hline
• \end{array}\)
• B) (a) Application and allotment 30 June 2013
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Cash trust } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Application-debentures } & & 5000000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cash at bank } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash trust } & & 5000000 \\
• \hline
• \end{array}\)
• (b) Payment of interest 31 December 2013
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Cash at bank } & 200000 & \\
• \hline \mathrm{Cr} & \text { Interest } & & 200000 \\
• \hline
• \end{array}\)
• (c) Redemption of debentures 30 June 2015
• \(\begin{array}{|l|l|l|l|}
• \hline \text { Dr } & \text { Debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 5000000\\
• \hline
• \end{array}\)
• C) (a) Application and allotment 30 June 2013
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Cash trust } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Application-debentures } & & 5000000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cash at bank } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash trust } & & 5000000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Application-debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 5000000 \\
• \hline
• \end{array}\)
• (b) Payment of interest 31 December 2013
• \(\begin{array}{|l|l|l|l|}
• \hline \text { Dr } & \text { Interest expense } & 200000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 200000\\
• \hline
• \end{array}\)
• (c) Redemption of debentures 30 June 2015
• \(\begin{array}{|l|l|r|r|}
• \hline \text { Dr } & \text { Debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 5000000\\
• \hline
• \end{array}\)
• D) (a) Application and allotment 30 June 2013
• \(\begin{array}{|l|l|l|l|}
• \hline \text { Dr } & \text { Debentures } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Cash trust } & & 5000000 \\
• \hline
• \end{array}\)
• (b) Payment of interest 31 December 2013
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Interest receivable } & 200000 & \\
• \hline \mathrm{Cr} & \text { Cash at bank } & & 200000 \\
• \hline
• \end{array}\)
• (c) Redemption of debentures 30 June 2015
• \(\begin{array}{|l|l|r|l|}
• \hline \mathrm{Dr} & \text { Cash at bank } & 5000000 & \\
• \hline \mathrm{Cr} & \text { Debentures } & & 5000000 \\
• \hline
• \end{array}\)

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