Required:
a) Calculate the acquisition cost of the Gizmo Machine that will be used as the base for future
depreciation charge. (3 marks)
b) Provide the journal entries that would appear in Tea Tree Bay Ltd’s books to account for the
acquisition of the Gizmo Machine. (5 marks)
c) Will the maintenance cost be included in the acquisition cost of the machine? Justify your answer.
(2 marks, maximum 100 words)
Week 2
a) What factors should be considered in determining the issue price of a debenture. (2 marks)
b) On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six
months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a
rate of return of 6 per cent. Interest expense is determined using the effective-interest method.
Required:
(i) Determine the issue price of the debenture. (2 marks)
(ii) Provide the journal entries at: (6 marks)
1 July 2018, 30 June 2019, & 30 June 2020.
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