Problem 2.

On January 1, of 2017, XYZ Co. sells $200,000 (200 bonds with a $1,000 face value) of their zero coupon rate, 4 year bonds with an annual interest payment date of December 31. The bonds are sold to investors at a market rate of interest of 4 percent.

1. How much did XYZ get for the sale of the bonds on 1/1/17?

2. What would the interest expense be on these bonds on 12/31/17 and 12/31/18?

3. What would the liability be on these bonds on 12/31/17 and 12/31/18?