Asked by Christian DelaRosa on Jun 09, 2024
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Trent Corp.purchased $1,000,000 of bonds at 96 when the market yield was 8%.The bonds pay interest at the rate of 6%.Trent intends to hold these bonds to maturity and will not need to sell the bonds before that date. Which of the following statements is not correct?
A) Since the bonds were purchased at a discount,the cash interest will be less than interest revenue.
B) Since the bonds were purchased at a discount,the book value of the bond investment will increase toward its maturity value.
C) Since the bonds were purchased at a discount,the bond investment will be classified and accounted for as a trading security.
D) The company would recognize a gain or loss on the bonds if they are sold prior to their maturity date.
Bond Investment
Buying bonds as a way to generate income through interest payments, representing a loan from the investor to the issuer.
Market Yield
The annual income return on an investment, expressed as a percentage of the market price.
Trading Security
A financial instrument, such as stocks or bonds, held by an entity for the purpose of selling them in the near term to generate income through price appreciation.
- Acquire knowledge and discern between diverse techniques used in accounting for long-term investments.
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Learning Objectives
- Acquire knowledge and discern between diverse techniques used in accounting for long-term investments.
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