The December 31, 2005, balance sheet of Far Imports

includes the following items:

The bonds were issued on December 31, 2004, at 97, with

Interest payable on June 30 and December 31 of each year.

On January 2, 2007, Far Imports retired $400,000 of these

bonds at 98.

Prepare the journal entries to record retirement of the bonds,

Including accrual of interest since the last payment and

amortization of the discount.

9% bonds payable due 12/31/2014