Which of the following statements does not correctly describe the accounting for bonds that were issued at their face (maturity)value?
A)The market rate of interest equals the coupon rate.
B)The interest expense over the life of the bonds will equal the total cash interest payments.
C)The present value of the bonds' future cash flows equals the bonds' maturity value.
D)The book value of the bond liability decreases when interest payments are made on the due dates.

Question

Quizplus · Accepted Answer

When bonds are issued at their face (maturity) value, the book value of the bond liability remains constant throughout the life of the bond because the interest expense equals the cash interest payments. The book value only changes when the bond is issued, redeemed, or if there is an impairment. It does not decrease with each interest payment.

Which of the Following Statements Does Not Correctly Describe the Accounting