I couldn't reply to the topic below, so made a new topic

Recap

I have another question that i am getting confused with.

Lucindy issue a debt instrument on 1 Jan X4 at its nominal value of $4,000,000. The instrument carries a fixed coupon interest rate of 6%, which is payable annually in arrears.
Transaction costs associated with the issue were $200,000. The effective interest rate applicable to this instrument has been calculated at approximately 8.4%.

What are the amounts that should be recorded as the opening liability on 1 Jan X4 and the finance cost in the P & L for year ended 31 Dec X4?

Here i have a feeling i have worked it out the wrong way round.

Opening liability = 4,000,000 – 200,000 = 3,800,000

Finance Cost = 3,800,000 * 8.4% = 319,200
I think i answered correctly if Lucindy has invested rather than being the issuer.

So would the opening Liability be the 4,000,000 (and ignore the transaction costs for the liability)
Finance cost = (4,000,000* 6%) = 240

April 20, 2017 at 7:24 am
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MikeLittle

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No, I believe that your answer is correct

OK?

Sorry I didn’t understand your reply. Are you saying i was correct with my answer;

1) Opening liability = 4,000,000 – 200,000 = 3,800,000
Finance Cost = 3,800,000 * 8.4% = 319,200

2) Opening Liability be the 4,000,000 (and ignore the transaction costs for the liability)
Finance cost = (4,000,000* 6%) = 240

I cannot find how to record if when a company issues Debt instrument, unless I am not understanding the question fully?