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retirement and refinancing of bonds chiam corporation has 300 000 of 12 bonds callab 692440

Retirement and Refinancing of Bonds

Chiam Corporation has $300,000 of 12% bonds, callable at 102, with a remaining 10 year term, and interest payable semiannually. The bonds are currently valued on the books at $290,000, and the company has just made the interest payment and adjustments for amortization of any premium or discount. Similar bonds can be marketed currently at 10% and would sell at par.

1. Give the journal entries to retire the old debt and issue $300,000 of new 10% bonds at par.

2. In what year will the reduction in interest offset the cost of refinancing the bond issue?

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