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    Bond Indebtedness and Maturity

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    Why would a company want to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a transaction.

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    Solution Preview

    Companies retire bonds before they are due. There can be several reasons why they do this.
    - Changes in Interest rate: If the company can secure a lower interest rate based on market conditions, they will refinance in order to lower the interest expense and increase the net income for the company.
    - Investment opportunities: There may not be anything ...

    Solution Summary

    The solution clearly explains the treatment when a company chooses to retire a bond before the maturity date. Specific debt and credit entries are shown as well.