Trent Corp.purchased $1,000,000 of bonds at 96 when the market yield was 8%.The bonds pay interest at the rate of 6%.Trent intends to hold these bonds to maturity and will not need to sell the bonds before that date. Which of the following statements is correct?
A)Since the bonds were purchased at a discount,the cash interest will be more than interest revenue.
B)Since the bonds were purchased at a discount,the book value of the bond investment will increase toward its maturity value.
C)The bond investment will be classified as available-for-sale.
D)The company will recognize unrealized gains or losses on the bonds at each balance sheet date when the bonds are adjusted to fair value.

Question

Quizplus · Accepted Answer

Since the bonds were purchased at a discount (96% of the face value), the book value of the bond investment will increase over time as the discount is amortized. This process continues until the book value equals the face value at maturity.