Miller Corp.purchased $1,000,000 of bonds at 95 when the market yield was 10%.The bonds pay interest at the rate of 8%.Miller intends to hold these bonds to maturity and will not need to sell the bonds before that date.Which of the following statements is false?
A)Since the bonds were issued at a discount,the cash interest will be based on the 8% rate.
B)Since the bonds were issued at a discount,the book value of the bond investment will increase toward its maturity value.
C)The company would recognize unrealized gains or losses on the bonds as the discount is amortized.
D)The bonds will be classified and accounted for as a held-to-maturity investment.

Question

Quizplus · Accepted Answer

Explanation: Unrealized gains or losses are not recognized for held-to-maturity investments. Instead, the discount is amortized to interest income over the life of the bond, affecting the income statement through increased interest income, not through unrealized gains or losses.