On 1 January 2018, Casper Limited (Casper) issued 1,000 4% debentures for cash. Each debenture has a face value of $1,000 and pays interest half-yearly on 30 June and 31 December respectively. The debentures mature on 31 December 2021. Casper uses the effective interest method to amortize any premium or discount arises on issue of the debentures.

The market interest rate of a similar debenture is 6%. Casper has the nancial year ends on 31 December.

Required:

a Determine the issue price of the 1,000 debentures and explain why Casper cannot issue the debentures at par value.

b State three reasons why Casper prefers to issue debentures as a source of long-term nancing instead of equity nancing. Explain your answers.

c Prepare the amortization table for the debentures, showing details of the interest payment, interest expense, amortization of debenture premium/discount, premium/discount not amortized and the carrying amount of the debentures at 30 June and 31 December respectively.

d Prepare journal entries (including narrations) to record the issue of the debentures, interest payment, interest expense and amortization of the debenture premium/discount in 2018.