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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. Journalize the entries to record the following selected transactions. Refer to the Chart of Accounts for exact wording of account titles. 20Y2 Mar. 1 Issued the bonds for cash at their face amount. Sept. 1 Paid the interest on the bonds. 2014 Sept. 1 Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.) Instructions Mia Breen Corp. produces and sells wind-energy-driven engines. To finance its operations, Mia Breen issued $22,000,000 of 20-year, 4% callable bonds on May 1, 2045, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions. Refer to the Chart of Accounts for exact wording of account titles 20Y5 May Nov. 1 1 Issued the bonds for cash at their face amount. Paid the interest on the bonds. 2049 Nov. 1 Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)

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The Omit entry for payment of interest is 1. Cash 20,000,000

Bonds Payable 20,000,000

2. Interest Expense 600,000

Cash 600,000

3. Bonds Payable 20,000,000

Loss on redemption on bond 400,000

Cash 20,400,000.

What is the reason of payment of interest?

  • For a number of crucial reasons, lenders require borrowers to pay interest.
  • First, when someone lends money, they are no longer able to utilize that money to pay for their own goods.
  • This difficulty is offset by the payment of interest. Second, a borrower can stop paying back the debt.
  • What do interest payments serve as?
  • Lenders may charge interest for the use of their money, or borrowers may charge interest for the use of those funds.
  • Simple interest (based on the principle amount) or compound interest are two common definitions of interest (based on principal and previously-earned interest).
  • Interest is the cost of borrowing money or the fee you charge to lend it. Most frequently, interest is shown as a yearly percentage of the loan amount.

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