QUESTION 4 (15 MARKS)

Wide Angle Bhd is constructing a new office building at a cost of RM2 million.When building is in the final stage of completion, Wide Angle Bhd faces financial difficulties as the company needs a fund amounted RM450,000 to complete the construction. The management team of Wide Angle Bhd decides to issue bonds instead of shares since that is a way to raise capital without diluting the current shareholders' equity. The RM450,000 of 8%, 5-year bonds were issued on 1 January 2019 and pay interest semi-annually on each 1 January and 1 July, which the payment is starting on July 2019. The market rate of bonds yield 6%. The financial year ends on 30 September. Wide Angle Bhd uses the effective interest method to amortize bond premium or discount.

REQUIRED:

(Show your workings. Round your answer to the nearest RM)

(a) Prepare the journal entry to record the issuance of the bonds on 1 January 2019.

(3 Marks)

(b) Prepare the journal entry to record the related transactions of bonds on 1 July 2019 and 30 September 2019.

(4 Marks)

(c) Assume that Wide Angle Bhd was unable to sell the bonds dated 1 January 2019 until 1 March 2019, two months after they are dated. Explain the accounting treatment to record issuance of the bonds between interest date and interest expenses on 1 July 2019.

(8 Marks)

Present Value Table Periods Present value of 1 Present value of an Present value of an (n) ordinary annuity due of 1 annuity of 1 4% 5% 4% 5% 4% 5% 3 0.88900 0.86384 2.77509 2.72325 2.88609 2.85941 4 0.85480 0.82270 3.62990 3.54595 3.77509 3.72325 5 0.82193 0.78353 4.45182 4.32948 4.62990 4.54595 6 0.79031 0.74622 5.24214 5.07569 5.45182 5.32948 7 0.75992 0.71068 6.00205 5.78637 6.24214 6.07569Present Value Table: Present value interest factor of RM1 per period at 1% for n periods, PVIF (i,n). Period 1% 2% 3% 4% 5% 6% 7% 8% 0.99010 0.98039 0.97087 0.96154 0.95238 0.94340 0.93458 0.92593 2 0.98030 0.96117 0.94260 0.92456 0.90703 0.89000 0.87344 0.85734 3 0.97059 0.94232 0.91514 0.88900 0.86384 0.83962 0.81630 0.79383 4 0.96098 0.92385 0.88849 0.85480 0.82270 0.79209 0.76290 0.73503 5 0.95147 0.90573 0.86261 0.82193 0.78353 0.74726 0.71299 0.68058 6 0.94205 0.88797 0.83748 0.79031 0.74622 0.70496 0.66634 0.63017 7 0.93272 0.87056 0.81309 0.75992 0.71068 0.66506 0.62275 0.58349 8 0.92348 0.85349 0.78941 0.73069 0.67684 0.62741 0.58201 0.54027 9 0.91434 0.83676 0.76642 0.70259 0.64461 0.59190 0.54393 0.50025 10 0.90529 0.82035 0.74409 0.67556 0.61391 0.55839 0.50835 0.46319Present value interest factor of an (ordinary) annuity of RM1 per period at 1% for n periods, PVOI(i,n). Period 1% 2% 3% 4% 5% 6% 7% 8% 0.99010 0.98039 0.97087 0.96154 0.95238 0.94340 0.93458 0.92593 2 1.97040 1.94156 1.91347 1.88609 1.85941 1.83339 1.80802 1.78326 3 2.94099 2.88388 2.82861 2.77509 2.72325 2.67301 2.62432 2.57710 4 3.90197 3.80773 3.71710 3.62990 3.54595 3.46511 3.38721 3.31213 5 4.85343 4.71346 4.57971 4.45182 4.32948 4.21236 4.10020 3.99271 6 5.79548 5.60143 5.41719 5.24214 5.07569 4.91732 4.76654 4.62288 7 6.72819 6.47199 6.23028 6.00205 5.78637 5.58238 5.38929 5.20637 8 7.65168 7.32548 7.01969 6.73274 6.46321 6.20979 5.97130 5.74664 9 8.56602 8.16224 7.78611 7.43533 7.10782 6.80169 6.51523 6.24689 10 9.47130 8.98259 8.53020 8.11090 7.72173 7.36009 7.02358 6.71008