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On 1 July 2015 Kruger Ltd privately issues $1 million in six-year debentures, which pay interest every six months at a coupon rate of 6 per-cent per annum

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On 1 July 2015 Kruger Ltd privately issues $1 million in six-year debentures, which pay interest every six months at a coupon rate of 6 per-cent per annum. At the time of issuing the securities, the market requires a rate of return of 4 per-cent. Consistent with the requirements of AASB 9, the debentures are accounted for using the effective interest method.

Required:

(a) Determine the fair value of the debentures at the time of issue (which will also be their issue price).

(b) Provide the journal entries at:

(i) 1 July 2015

(ii) 31 December 2015

(iii) 30 June 2016.