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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. (HINT: There are a total of three journal entries which must be made.) You may round your answers to the nearest dollar.

Show your work here !!!!

Record your FIRST of three journal entry here for 2020:

Record your SECOND of three journal entry here for 2020:

Record your THIRD journal entry here for 2020:

Additional Question (A) Related to Pineapples Corp: What is the journal entry Pineapples Corp. will record when it retires the bonds in 10 years (after/not including the final coupon payment):

Additional Question (B) Related to Pineapples Corp: Over the life of the bond, how much interest expense will Pineapples Corp. recognize? (Show your calculation in the space below for full credit)

Additional Question (C) Related to Pineapples Corp: If the coupon rate was 6% (instead of 8.48%) and all other facts remained the same, what would be the price of the bond at issuance? (Show your work or provide your explanation in the space below for full credit.)

Solutions

Expert Solution

Journal entry in the year 2020:

Please note discount on issue of bond write off over the life of bond

Additional Q-A: Journal entry at the time of retirement:

Additional Q-B = 84,800 * 2 * 10 years = $1,696,000

Additional Q-C = Calculation of bond price when coupon rate is 6%:

Semiannually interest = $2,000,000*6%/2 = $60,000

Bond Price = ($60,000*(((1-(1+(6%/2))^-(2*10))/(6%/2)))) = $892,648

If coupon rate is 6% then bond price would be $892,648.

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ekkarill92 answered 1 year ago
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