On 1 July 2008,Roos Limited issues $3 million in ten year,8 per cent annual debentures to Hall Limited.The market required rate of return on the debentures at the time is 12 per cent.On 1 July 2010,Hall Limited decided to forgive the debt owed by Roos Limited,and so cancels the debt.Assuming Roos Limited uses the straight-line method to amortise the debenture discount,what is the journal entry passed in the books of Roos Limited at 1 July 2010?:
E) None of the given answers.

Question

Quizplus · Accepted Answer

When the debt is forgiven, Roos Limited must make the following journal entry:

Debenture loan (face value)  = $3,000,000
Less: unamortised discount (1/10 x $3,000,000 x 2) = $600,000
Carrying amount of debt = $2,400,000

Journal Entry:
Dr. Debenture loan (face value) $3,000,000
Cr. Discount on debentures $600,000
Cr. Debenture loan (carrying value) $2,400,000

Therefore, the correct answer choice is (C).

On 1 July 2008,Roos Limited Issues $3 Million in Ten