On January 1st 2001, Patterson Inc. issued bonds with a total face value of $4,000,000 (4 million), a 9% coupon rate and a life of 12 years. The market rate of interest for these bonds is 10% per year on the date of issue. The coupon payment is payable annually on December 31. On January 1st 2006 Patterson buys back from the market 50% of the bonds that it had issued i.e. it buys back bonds with a face value of two million. The market rate of interest on January 1st 2006 for Pattersons bonds is 12% per year. Prepare the journal entry that Patterson should record on January 1st 2006? What is the amount of interest expense that Patterson should report on its 2006 income statement?

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