Redemption of the Bond

Keller Corporation offers a zero-coupon bond of $80,000 on January 1, 20X5. It will come due on December 31, 20X7. Potential bondholders and Keller negotiate an annual interest rate of 7 percent on the bonds.

a. Determine the amount the bondholders would be willing to pay on January 1, 20X5.

b. Record the issuance of the bonds on January 1, 20X5.

c. Record the accrual of interest on the bond on December 31, 20X5.

d. Record the accrual of interest on the bond on December 31, 20X6.

e. Record the accrual of interest on the bond on December 31, 20X7.

f. Record the redemption of the bond on December 31, 20X7.

Jaguar Corporation issues term bonds with a face value of $300,000 on January 1, 20X1. The bonds have a stated rate of interest of 7 percent and a life of four years. They pay interest annually on December 31. The market value on the date of issuance was 9 percent. Record all necessary journal entries on the following dates.

a. How much would investors be willing to pay for the bonds on January 1, 20X1?

b. Determine the amount of each annual cash interest payment.

c. How much interest expense would Jaguar record for each payment?

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