A corporation issues for cash $2, 000, 000 of 8%, 15 - year bonds, interest paya

Question

A corporation issues for cash $2, 000, 000 of 8%, 15 - year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight - line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? The carrying amount increases from its amount at issuance date to $2, 000, 000 at maturity. The carrying amount decreases from its amount at issuance date to $2, 000, 000 at maturity. The amount of annual interest paid to bondholders increases over the 15 - year life of the bonds. The amount of annual interest expense decreases as the bonds approach maturity.

Explanation / Answer

b is correct.

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