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- June 6, 2022 at 12:44 am #657482
(1) The loan note was issued on 1 October 20X4 and incurred issue costs of $1m which were charged to profit or loss Interest of $1 8m ($30m at 6%) was paid on 30 September 20X5 The loan is redeemable on 30 September 20X9 at a substantial premium which gives an effective interest rate of 9% per annum. No other repayments are due until 30 September 20X9
Professor, I am only stuck in this entry. Here it says that we have paid Interest of 1.8M. Later on, in solution, I saw that it was still subtracting this as Loan Finance from Un-adjusting Retained Earning. When we have recorded in Trial balance so it means that we have expensed it (Debit Interest Expense 1.8 Cr Cash 1.8M). We should only expense additional interest which is 810k.
I hope I am able to explain my query.
I just want to say is that if accountant has already paid interest expense and entered in trial balance. With that trial balance he calculated Draft SOPL and Draft Retained Earnings. So why again he is adjusting something he has already adjusted in drafts.June 7, 2022 at 8:57 pm #657779In the answer they will have removed the incorrect interest charged of $1.8m and then charged the correct amount using the amortised cost method. You are looking at the net impact but the answer has split it out into the two separate adjustments.
Thanks
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