On July 1, Mark Co.issued $3,000,000 of 10-year, 8% bonds at par.Interest on the bonds is payable semiannually on December 31 and June 30.On payment of interest, net assets of the company:

Question

Quizplus · Accepted Answer

The 8% bonds were issued at par for $3,000,000. This means that the company received the full amount of $3,000,000 from bondholders. The bonds have a stated interest rate of 8%, which means that the company must pay $240,000 ($3,000,000 x 8%) in interest each year. The interest is paid semiannually, which means that the company will pay $120,000 ($240,000/2) in interest on December 31 and $120,000 ($240,000/2) in interest on June 30. When the company pays the interest, its net assets will decrease by $120,000 ($240,000/2). Therefore, the correct answer is C.