AMC Entertainment, Inc. owns and operates movie theaters worldwide. Assume the c

Question

AMC Entertainment, Inc. owns and operates movie theaters worldwide. Assume the company issued 4 percent bonds at their $58,800,000 face value and then used all of these cash proceeds to retire bonds with a stated interest rate of 5 percent. At that time, the 5 percent bonds had a carrying value of $56,000,000.

AMC Entertainment, Inc. owns and operates movie theaters worldwide. Assume the company issued 4 percent bonds at their $58,800,000 face value and then used all of these cash proceeds to retire bonds with a stated interest rate of 5 percent. At that time, the 5 percent bonds had a carrying value of $56,000,000.

Required 1. Prepare the journal entries to record the issuance of the 4 percent bonds and the early retirement of the 5 percent bonds. Assume both sets of bonds were issued at face value. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Record the issuance of 4 percent bonds in the amount of $58,800,000 1 Record the retirement of the 5 percent bonds which has a carrying value of $56,000,000. 2 Credit Note:-journal entry has been entered Record entry Clear entry View general journal

Explanation / Answer

1.

2. Loss

3. Interest Saved: $448000 per year

Interest saved per year = (5% x $56000000) - (4% x $58800000) = $2800000 - $2352000 = $448000

Transaction General Journal Debit Credit 1 Cash 58800000 Bonds payable 58800000 (To record issuance of 4% bonds) 2 Bonds payable 56000000 Loss on retirement of bonds 2800000 Cash 58800000 (To record retirement of 5% bonds)

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