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On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.

-Which of the following statements is true if Wayne issued the bonds for 96?
A)The market rate of interest was equal to the stated rate of interest.
B)The market rate of interest was lower than the stated rate of interest.
C)The market rate of interest was higher than the stated interest rate.
D)The bonds carried a variable or floating rate that changed in response to market conditions.

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.

-Which of the following statements is true if Wayne issued the bonds for 96?
A)The market rate of interest was equal to the stated rate of interest.
B)The market rate of interest was lower than the stated rate of interest.
C)The market rate of interest was higher than the stated interest rate.
D)The bonds carried a variable or floating rate that changed in response to market conditions.

Quizplus · Accepted Answer

Bonds that are issued at 96 are issued at only 96% of their face value.Bonds are issued at a discount if the market rate of interest for bonds of similar risk is higher than the stated rate of interest.

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