Miller Corp. purchased $1,000,000 of bonds at 96. The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity. Which of the following statements is correct?
A) Since the bonds were purchased at a premium, the cash interest will be less than interest revenue.
B) Since the bonds were purchased at a discount, the book value of the bond investment will increase.
C) The bond investment must be accounted for using the trading securities classiﬁcation.
D) The company would recognize unrealized gains or losses on the bonds.

Question

Quizplus · Accepted Answer

Since the bonds were purchased at 96, meaning below their face value (a discount), over time as the bonds approach maturity, the book value of the bond investment will increase through the amortization of the discount. This process aligns the book value with the face value by the maturity date.