Chang Corp. purchased $1,000,000 of bonds at par value on April 1, 20X0. The bonds pay interest at the rate of 10%. Chang intends to hold these bonds to maturity. Which of the following statements is false?
A) Since the bonds were issued at par value, the cash interest will be the same as interest revenue.
B) The bonds will earn $75,000 of interest by December 31, 20X0.
C) The bond investment must be accounted for using the fair value approach.
D) Since they were classiﬁed as held-to-maturity, the company would recognize no unrealized gains or losses on the bonds over their lifetime.

Question

Quizplus · Accepted Answer

The false statement is C because when bonds are classified as held-to-maturity, the accounting treatment involves amortized cost, not the fair value approach. Unrealized gains or losses are not recognized in the financial statements for these types of investments.