Eaton Company Issued $5 Million of Bonds with a 10

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds, the market rate of interest was 10%. Which of the following statements is incorrect?

A) The bonds were issued at par.
B) Annual interest expense will equal the company's annual cash payments for interest.
C) The book value of the bonds will decrease as cash interest payments are made.
D) Annual interest expense is the same regardless of whether the effective-interest or straight-line method of amortization is useD.Since the coupon and interest rates were the same at the date of issue, the bonds were issued at par.The payment of interest does not affect the book value of the bond liability because there is no discount or premium to amortize to interest expense.