Chang Corp. purchased $1,000,000 of bonds at par value on April 1, 2014. 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, 2014.
C)The bond investment must be accounted for using the fair value method.
D)Since the bonds were classified as held-to-maturity, the company would not recognize unrealized gains or losses on the bonds during the period held by Chang.

Question

Quizplus · Accepted Answer

The bond investment can be accounted for using the held-to-maturity method if the intent is to hold the bonds until maturity, as stated in the question. The fair value method is used when the intent is to actively trade the bonds or if the bonds are classified as available for sale. Thus, statement C is false. Statements A, B, and D are all true.