AMC Entertainment, Inc., owns and operates 361 movie theaters worldwide, with 5,203 screens in 31 states. Assume the company issued 11 percent bonds in the amount of $53,000,000 and then used all of these cash proceeds to retire bonds with a coupon rate of 13.6 percent. At that time, the 13.6 percent bonds had a carrying value of $50,000,000.
Required:
1. Prepare the journal entries to record the issuance of the 11 percent bonds and the early retirement of the 13.6 percent bonds. Assume both sets of bonds were issued at face value.
2. How should AMC report any gain or loss on this transaction?
3. What dollar amount of interest expense is AMC saving each year by replacing the
13.6 percent bonds with the 11 percent bonds?