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How will the finance cost be cal culated and what the double entry will be for a compound instrument calculated as follows:
Liability component P.V Principal $1,544,400 + P.V. Interest annuity $253,100.
Equity component bal fig. $202,500I am having a hard time seeing how the cost will be entered annually. bond is for three years. discount factor 9%, interest paid annually in arrears at 5% of principal $2million.
Is it not recording a liability of 1,797,500 as debt and 202,500 as equity.
Then after one year 1,797,500 + 9% interest = 1,959,275
Deduct 5% x 2,000,000 = 100,000 leaving 1,859,275
Then 1,859,275 + 9% interest = 2,026,609.75
Deduct 5% x 2,000,000 = 100,000 leaving 1,926,609.75
Then 1,926,609.75 + 9% interest = 2,100,004
Deduct 5% x 2,000,000 = 100,000 leaving 2,000,000 payable.
Does that help?
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