Sure, let's walk through the detailed, step-by-step process for the issuance and redemption of the debentures:
### Issuance of Debentures
1. Determine the number of debentures issued: The company has issued 21,000 debentures.
2. Nominal value of each debenture: Each debenture has a nominal value (or face value) of [tex]$100.
3. Total amount of issued debentures: To calculate the total amount for the issued debentures, multiply the number of debentures by the nominal value.
- Total amount = 21,000 debentures * $[/tex]100 per debenture
- Total amount = [tex]$2,100,000
### Redemption of Debentures
1. Redemption premium: The debentures are redeemed at a 10% premium.
2. Redemption value per debenture: To find the redemption value per debenture, add the redemption premium to the nominal value.
- Redemption premium per debenture = 10% of $[/tex]100 = [tex]$10
- Redemption value per debenture = Nominal value + Redemption premium
- Redemption value per debenture = $[/tex]100 + [tex]$10 = $[/tex]110
3. Total redemption amount: To calculate the total redemption amount, multiply the number of debentures by the redemption value per debenture.
- Total redemption amount = 21,000 debentures * [tex]$110 per debenture
- Total redemption amount = $[/tex]2,310,000
### Journal Entries
#### At the Time of Issuance:
- Debit: Bank Account [tex]$2,100,000 (receiving cash for the issuance)
- Credit: Debentures Account $[/tex]2,100,000 (recognizing the liability for the issued debentures)
#### At the Time of Redemption:
- Debit: Debentures Account [tex]$2,100,000 (removing the liability)
- Debit: Premium on Redemption of Debentures Account $[/tex]210,000 (accounting for the additional premium)
- Credit: Bank Account [tex]$2,310,000 (paying cash for the redemption including the premium)
In summary:
- The total amount raised through the issuance of the debentures was $[/tex]2,100,000.
- The total amount paid for the redemption including the 10% premium was $2,310,000.
