Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A) The amount of annual interest paid to bondholders remains the same over the life of the bonds.
B) The amount of annual interest expense decreases as the bonds approach maturity.
C) The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.
D) The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.

Question

Quizplus · Accepted Answer

The amount of annual interest paid to bondholders remains the same over the life of the bonds because it is based on the face value of the bonds and the stated interest rate, which do not change.

Dylan Corporation Issues for Cash $2,000,000 of 8%, 15-Year Bonds