BAC 201: ACCOUNTING FOR EQUITIES AND LIABILITIES.

QUESTION 1

XYZ Co. Ltd issued 10% 4 year bond payable of Ksh 10,000,000 on 1st January 2015, interest payable semi annually on 1st July and 1st Janaury each year. The effective interest rate of the bond 12%.

Required;

1. the price at which the bond was sold
2. prepare the bond amortization schedule using effective interest method
3. journal entry on 1st July 2015 and 31st December 2015

Question 2

Equator Ltd leased an asset from nanyuki Ltd on the following terms.

1. annual installment payments amount to Ksh 54,000 inclusive of executory cost of Ksh 4,000
2. the implicit interest rate is 10%
3. the primary lease period is 4 years as well as the useful life of the asset.

Required;

a) classify the lease as either operating or capital lease giving the reasons thereof

b) lease amortization schedule using acruarial method

c) journal entries to record the above transaction.