A corporation issues $500,000 in 20-year cash bonds that have an 8% interest rate, payable annually. The current market rate is 7%. The corporation uses the straight-line method to amortize the bond discount or premium. Which of the following is true?
A) The carrying amount increases from its amount at issuance to $500,000 at maturity.
B) The carrying amount decreases from its amount at issuance to $500,000 at maturity.
C) The annual interest paid to the bondholders increases over the next 20 years.
D) The annual interest paid to the bondholders decreases as the bonds reach maturity.
E) The bonds were sold at a discount.
Correct Answer:
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