Chang Corp. purchased $1,000,000 of bonds at par value on April 1, 2010. The bonds pay interest at the rate of 10%. Chang intends to hold these bonds to maturity. Which of the following statements is false?

Question

Quizplus · Accepted Answer

The statement "The bond investment must be accounted for using the fair value approach" is false. Since Chang Corp. intends to hold the bonds to maturity and has classified them as held-to-maturity, they will be accounted for at amortized cost, not fair value. The other statements are true: there will be no unrealized gains or losses recognized on the bonds over their lifetime, the bonds will earn $75,000 of interest by December 31, 2010, and the cash interest will be the same as interest revenue since the bonds were issued at par value.