Which of the following best characterizes the role of the coupon rate and the ma

Question

Which of the following best characterizes the role of the coupon rate and the market rate in the accounting for bonds payable?

A. The proceeds recorded at issuance depend only on the stated rate of interest for bonds of a similar maturity and risk as well as the payment stream.

B. The market rate tells one the stated cash interest that will be received.

C. The market rate must be less than the stated rate.

D. The market rate at issuance determines the allocation of total cash receipts between interest and principal. E. It is not possible to calculate the amount by which the balance sheet liability differs from the current market value of the debt

Explanation / Answer

Solution:

The statement that  best characterizes the role of the coupon rate and the market rate in the accounting for bonds payable is "The market rate at issuance determines the allocation of total cash receipts between interest and principal."

Hence option D is correct.

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