Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 10%.Which of the following statements is incorrect?

Question

Quizplus · Accepted Answer

When bonds are issued at par and the market rate of interest equals the coupon rate, the book value of the bonds remains constant over the life of the bonds because no premium or discount needs to be amortized. Cash interest payments do not affect the book value of the bonds; they merely represent the periodic interest expense recognized in the income statement, which equals the cash paid for interest.

Eaton Company Issued $5 Million of Bonds with a 10