Accounting - debentures

On 1 October 2017, Big Lion Corporation issued five-year, $8,000,000 (face value), 9% debentures which provide an effective yield of 8%. The interest is paid semi-annually on 31 March and 30 September. The Corporation uses the effective interest rate method to calculate interest expense and amortization. Its fiscal year ends on 31 December.

Required:

a Calculate the market value of the debentures at issuance.

b Prepare an amortization schedule containing relevant data through the life of the debentures.

c Determine the carrying value of the debentures for the Corporation that would be disclosed on the statement of the financial position as of 31 December 2018.

d Prepare the required journal entries for the following dates:

i. 1 October 2017 (to record debenture issuance)

ii. 31 March 2018 (to record semi-annual interest payment of the debentures)

iii. 31 December 2019 (to accrue year-end interest of the debentures).

e Repeat (a) to (d) assuming instead that Big Lion issued five-year, $8,000,000 (face value), 9% debentures which provide an effective yield of 10%. The interest is paid semi-annually on 31 March and 30 September.