EXERCISE 10-25 RETIREMENT AND REFINANCING OF BONDS Chiam Corporation has S 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 cur- rently 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?