Asked by Jovelyn Angell on May 21, 2024
Verified
A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A) The amount of annual interest expense is computed at 10% of the bond carrying amount at the beginning of the year.
B) The amount of annual interest expense gradually decreases over the life of the bonds.
C) The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
D) The bonds will be issued at a premium.
Straight-Line Method
A method of depreciation that allocates an equal amount of depreciation each year over the useful life of an asset.
Bond Discount
The difference between the face value of a bond and its selling price when the bond is sold for less than its face value.
Premium
An amount paid in addition to a standard price, rate, or value, often indicating a higher level of quality or service.
- Absorb the financial significance of presenting bonds at par value, discounted value, or enhanced value.
- Estimate the charges of interest and the amortization relevant to bond liabilities.
- Gain insight into the construction of bond amortization schedules and the utilization of the straight-line amortization method.
Verified Answer
Learning Objectives
- Absorb the financial significance of presenting bonds at par value, discounted value, or enhanced value.
- Estimate the charges of interest and the amortization relevant to bond liabilities.
- Gain insight into the construction of bond amortization schedules and the utilization of the straight-line amortization method.
Related questions
The Interest Expense Recorded on an Interest Payment Date Is ...
When the Contract Rate of a Bond Is Greater Than ...
A Premium on Bonds Occurs When Bonds Carry a Contract ...
On January 1,a Company Issued a $500,000,10%,8-Year Bond Payable,and Received ...
The Selling Price of a $10000 5-Year Bond Will Be ...