Eaton Company Issued Bonds When the Stated Rate of Interest

question 52

Multiple Choice

Eaton Company issued bonds when the stated rate of interest was 10% and the market rate was 8%. Which of the following statements is incorrect?

• A) The bonds were issued at a premium.
• B) Annual interest expense will be less than the company's annual cash payments for interest.
• C)The book value of the bonds will decrease as the bond matures.
• D)The annual interest expense will increase if the effective-interest method of amortization was useD.Given that the market rate of interest was less than the stated rate of interest, the bonds sold at a premium. Therefore, the book value decreases as the premium on bond payable account is amortized, as a result interest expense decreases.

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Definitions:

Hypermarkets

Large retail spaces that combine a supermarket and a department store, offering a wide range of products under one roof.

Central Business District

The dense area of a city where business, commerce, and retail activities are concentrated.

Suburban Mall

A large retail complex located in a suburban area that typically includes a variety of stores, restaurants, and entertainment options, serving the shopping and leisure needs of the surrounding community.

Retail Location

The physical place where a retail business operates, essential for attracting customers and affecting the store's performance.