Asked by nicole gaona on Jul 07, 2024
Verified
Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. 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 paid to bondholders remains the same over the life of the bonds.
B) The amount of annual interest expense decreases as the bonds approach maturity.
C) The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.
D) The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.
Straight-Line Method
A method of calculating depreciation by evenly spreading the cost of an asset over its expected useful life.
Annual Interest Paid
The total amount of interest a borrower pays to lenders over the course of one year, often related to loans or bonds.
Bondholders
Individuals or institutions that hold debt securities issued by governments or corporations, entitling them to receive fixed interest payments.
- Detail the accounting practices for recording the issuance of bonds, executing interest payments, amortizing bond discount/premium, and carrying out bond redemptions.
- Learn about the approaches for amortizing bond discount and premium and their impact on the cost of borrowing.
- Assess the cash proceeds from the issuance of bonds and the bond's book value throughout its existence.
Verified Answer
VD
Vanessa DelgadoJul 10, 2024
Final Answer :
A
Explanation :
The amount of annual interest paid to bondholders remains the same over the life of the bonds because it is based on the face value of the bonds and the stated interest rate, which do not change.
Learning Objectives
- Detail the accounting practices for recording the issuance of bonds, executing interest payments, amortizing bond discount/premium, and carrying out bond redemptions.
- Learn about the approaches for amortizing bond discount and premium and their impact on the cost of borrowing.
- Assess the cash proceeds from the issuance of bonds and the bond's book value throughout its existence.