Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium?
A)The market rate of interest is less than the coupon interest rate.
B)The interest expense over the life of the bonds will be less than the cash interest payments.
C)The present value of the bonds' future cash flows is less than 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

Bonds issued at a premium means that the coupon interest rate is higher than the market interest rate, which results in the bonds being sold at a price above their face value. Therefore, the present value of the bonds' future cash flows is higher than the bonds' maturity value. Choices A and B correctly describe the accounting for bonds issued at a premium, and D is incorrect for bonds issued at a discount.

Which of the Following Statements Incorrectly Describes the Accounting for Bonds