Question

Hoover Corp., a wholesaler of music equipment, issued $20,000,000 of 20-year, 6% callable bonds on March 1, 20Y2, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year.

Answer 1

March 1, 20Y2. Bonds are issued.

Dr Cash 20,000,000

Cr Bonds Payable 20,000,000

September 1, 20Y2. Interest on the bonds are paid.

Dr Interest Expense 600,000

Cr Cash 600,000

The third part of the question was:

Journalize the following: September 1, year 20Y4, called the bond issue at 102, the rate provided in the bond indenture (Omit entry for payment of interest.)

September 1, 20Y4. Bonds are called.

Dr Bonds Payable 20,000,000

Dr Loss on Redemption of Bonds 400,000

Cr Cash 20,400,000

Step-by-step explanation:

the interest paid = face value of bonds x interest rate x time = 20,000,000 x 6% x 6/12 = $600,000

The loss on the redemption of the bonds = $20,000,000 x 2% = $400,000