On November 1,2009,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2009,and interest is payable each November 1 and May 1.Which of the following is incorrect assuming the straight-line method of amortization is utilized?
A)The market rate of interest exceeded the stated rate of interest when the bonds were issued.
B)The semi-annual interest expense is $1,095.
C)The book value of the bonds increases $45 every six months.
D)The semi-annual interest expense is less than the semi-annual cash interest payment.

Question

Quizplus · Accepted Answer

The straight-line discount amortization ($45) = Discount on bonds payable ($30,000 - $29,100) F1F1F1S1F1F1F10 20 semi-annual interest payments.Semi-annual interest expense ($1,095) = Semi-annual cash payment ($30,000 F1F1F1S1F1F1F10 .07 F1F1F1S1F1F1F10 6/12) + Discount on bonds payable amortization ($45).

On November 1,2009,Davis Company Issued $30,000,ten-Year,7% Bonds for $29,100