On January 1, Year 1, Tempe extinguishes $10 million of 10 percent bonds payable due December 31, Year 2 that were originally issued at a discount by calling them at par value. The current carrying amount of the bonds payable is $9,950,000. To finance the debt extinguishment, management issues new debt at par with a new lender in the amount of $10 million. The new debt matures on December 31, Year 2, and has a 9 percent annual interest rate. Management incurs $100,000 in legal costs to negotiate the issuance of the new long-term bonds payable.
Required:
Prepare the journal entries to record the extinguishment of the debt and interest expense for Year 1.