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Pineapples Corporation is in need of cash. It issues bonds with a $2 million face value....

Pineapples Corporation is in need of cash. It issues bonds with a $2 million face value. The bonds have a 8.48% coupon rate. The market rate is 6%. The bonds have a life of 10 years, and are compounded semiannually. Pineapples Corp. issues the bonds on 1/1/20. Please provide all journal entries that Pineapples Corp. must record during 2020 in relation to these bonds.

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Expert Solution

No. Date General Journal Debit Credit
1 1/1/2020 Cash $         2,368,961
Premium on Bonds Payable $               368,961
Bonds Payable $           2,000,000
(To record bond issued at premium )
2 30/06/2020 Interest Expense $               71,069
Premium on Bonds Payable $               13,731
Cash $                 84,800
( To record interest expense Paid)
3 31/12/2020 Interest Expense $               70,657
Premium on Bonds Payable $               14,143
Cash $                 84,800
( To record interest expense Paid)

Working:

1)

Present value of interest payments $            1,261,610
[$2M*8.48%*6/12*14.87747 PV annuity factor (3%, 10 years, semi-annual bond)]
Present value of the face value $            1,107,352
[$2M * 0.55368PV ordinary factor (3%, 10 years)]
Price of Bonds $            2,368,961

2) Schedule:

Effective Interest Method
Annual Interest Periods Interest to Be Paid[a] Interest Expense to Be Recorded [a+b] Premium Amortization[b] Unamortized Discount Bonds Carrying Amount/Net Book Value
1/1/2020 $          368,961 $               2,368,961
30/06/2020 $            84,800 $                        71,069 $                 13,731 $          355,230 $               2,355,230
31/12/2020 $            84,800 $                        70,657 $                 14,143 $          341,087 $               2,341,087
30/06/2021 $            84,800 $                        70,233 $                 14,567 $          326,520 $               2,326,520
31/12/2021 $            84,800 $                        69,796 $                 15,004 $          311,515 $               2,311,515
30/06/2022 $            84,800 $                        69,345 $                 15,455 $          296,061 $               2,296,061
31/12/2022 $            84,800 $                        68,882 $                 15,918 $          280,143 $               2,280,143
30/06/2023 $            84,800 $                        68,404 $                 16,396 $          263,747 $               2,263,747
31/12/2023 $            84,800 $                        67,912 $                 16,888 $          246,859 $               2,246,859
30/06/2024 $            84,800 $                        67,406 $                 17,394 $          229,465 $               2,229,465
31/12/2024 $            84,800 $                        66,884 $                 17,916 $          211,549 $               2,211,549
30/06/2025 $            84,800 $                        66,346 $                 18,454 $          193,096 $               2,193,096
31/12/2025 $            84,800 $                        65,793 $                 19,007 $          174,088 $               2,174,088
30/06/2026 $            84,800 $                        65,223 $                 19,577 $          154,511 $               2,154,511
31/12/2026 $            84,800 $                        64,635 $                 20,165 $          134,346 $               2,134,346
30/06/2027 $            84,800 $                        64,030 $                 20,770 $          113,577 $               2,113,577
31/12/2027 $            84,800 $                        63,407 $                 21,393 $            92,184 $               2,092,184
30/06/2028 $            84,800 $                        62,766 $                 22,034 $            70,150 $               2,070,150
31/12/2028 $            84,800 $                        62,104 $                 22,696 $            47,454 $               2,047,454
30/06/2029 $            84,800 $                        61,424 $                 23,376 $            24,078 $               2,024,078
31/12/2029 $            84,800 $                        60,722 $                 24,078 $                       0 $               2,000,000

ekkarill92 answered 1 year ago
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