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On 1 April 2018, Shen Ltd acquired specialised equipment by issuing $2,700,000 of face value, 9% ten-year bonds to the equipment's manufacturer. No cash changed hands. The bonds will pay interest semi-annually, beginning with the first payment due on 1 October 2018. The market interest rate on the issue date was 10%. The equipment, which was available for use immediately, will be depreciated under the declining balance method at 30%. The estimated residual value is $200,000. Ignore GST. Round to two decimal places.
Required:
Question 1: Prepare the journal entry for the first payment due on 1 October 2018.
Question 2: On 1 April 2019, after the interest was paid, Shen Ltd and the equipment's manufacturer agreed that the bonds would be redeemed at a market price of 93.
Question 3: Prepare the journal entry to record the redemption. (Assume that Shen Ltd's carrying value for the bonds on the redemption date was $2,542,491.)
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