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    Nov 17, 2011, 08:07 AM
    Financial Accounting - Bond retirement journal entries
    It is now January 1, 2011, and Cartoons Limited is considering a $10 million share issue.
    The company would like to improve its debt / equity ratio before proceeding with the
    Issue. Cartoons' Chief Financial Officer has suggested to the board of directors that the
    Company could retire its $5 million of 9%, 10-year bonds. Currently, interest rates have
    Risen, and therefore the bonds could be retired at 99%.

    The bonds were issued when the yield was 8%, and pay interest semi-annually on June 30
    And December 31. The bonds will mature on June 30, 2012. Cartoons Limited's accounting
    Policy is to amortize any bond premium or discount using the effective interest method.

    The board of directors would like to know what the journal entry would be if the bonds
    Were retired immediately on January 1, 2011.

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