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Digital Bhd is a multinational company operating in Malaysia, Thailand and Indonesia. The company is planning to further expand its business to Australia next year. Therefore, the company needs a large capital to set up a new operating center in Australia. The company is considering to raise up capital either by equity or financing. The company decides to finance the business expansion by issuing bonds to public.
On 1 January 2019, the company issued 5-year callable bonds with face value of RM2,500,000. The bonds have a stated interest rate of 8% and estimated yield rate of 10%. Interest on the bond is payable every 1 July and 1 January every year. The company's financial year ended is on 31 October. The company uses effective interest method to amortize bond premium or discount.
REQUIRED:
problem (a) Determine the price of the bonds on the issuance date. Prepare the bond amortization schedule from year 1 January 2019 until 1 January 2021.
problem (b) Prepare journal entries on the following dates:
i. 1 January 2019
ii. 1 July 2019
iii. 31 October 2019
problem (c) Assume that Digital Bhd calls all its bonds at a price of RM2,525,000 on 1 January 2021. Prepare the journal entries on this date.
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