What if the bonds are retired early on January 1, 20X3 after the second interest was paid. The cash paid by the company out in the market was 98% of face value. What is the effect on the balance sheet and income statement from this early retirement. Why would this company want to retire the bonds early? Please give 2 specific reasons.

What is the effect on the balance sheet and income statement from this early retirement.

Effect on income statement: since the bonds were retired at 98, that means that a gain resulted from the retirement and it will increase net income.

Effect on balance sheet: liabilities will decrease as well as assets (cash), but retained earnings will increase a little due to the gain resulting from the retirement.

Why would this company want to retire the bonds early? Please give 2 specific reasons.

A company generally retires bonds because the coupon rate is higher than the market rate and it believes that new bonds can be issued at lower rates.

The company may have too much cash and no future investment projects, so by retiring bonds it will not pay any more unnecessary interests.

there is no following so id just amuse false