Which of the following statements correctly describes the accounting for bonds that were issued at a discount? The present value of the bonds' future cash flows is greater than the bonds' maturity value. The book value of the bond liability increases when interest payments are made on the due dates. The interest expense over the life of the bonds will be less than the total cash interest payments. The market rate of interest is less than the coupon interest rate.

Question

Business

Turner

15 May, 10:44

Which of the following statements correctly describes the accounting for bonds that were issued at a discount? The present value of the bonds' future cash flows is greater than the bonds' maturity value. The book value of the bond liability increases when interest payments are made on the due dates. The interest expense over the life of the bonds will be less than the total cash interest payments. The market rate of interest is less than the coupon interest rate.

+4

Answers (1)

Know the Answer?

Volvo · Answer 1

The book value of the bond liability increases when interest payments are made on the due dates.

Explanation:

bonds that were issued at a discount.

The market rate of interest is less than the coupon interest rate.

Incorrect. If the market rate is lower, then the bonds offers a better rate and investor will be okay to purchase at a higher price therefore, premium.

The interest expense over the life of the bonds will be less than the total cash interest payments.

Incorrect. This situation also describes the premium case.

The book value of the bond liability increases when interest payments are made on the due dates.

Correct. The amortization made each time to the discount onbonds payable account increase the carrying value of the bond over time matching at maturity with the bond face value.