Reference no: EM132968377

In order to fund its rapid business expansion, on January 1, Year 1, the Koala Company issued a two year 10% coupon bond. The face value is $100,000. Interest is payable annually on December 31 of each year. The implied effective (market) interest rate was 12%. There was a huge increase in the market effective interest rate at the end of Year 1. On January 1 of Year 2, Koala's bonds were traded at $88,000. The company took the opportunity to retire its existing bonds by issuing new bonds with one year maturity on January 1 of Year 2 with a coupon rate being the effective market rate on that day. The new bonds were issued at par and raised $88,000. All the proceeds from the new bond issuance were used to retire the bonds issued in Year 1.

Problem 1: Show all debt-related journal entries recorded by the Koala Company during Year 1 and Year 2.