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Question
Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
a. The carrying amount increases from its amount at issuance date to $1,000,000 at maturity.
b. The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
c. The amount of annual interest paid to bondholders increases over the 10-year life of the bonds.
d. The amount of annual interest expense decreases as the bonds approach maturity.
Answer
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