Which of the Following Statements Incorrectly Describes the Accounting for Bonds

question 58

Multiple Choice

Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium?

• A)The market rate of interest is less than the coupon interest rate.
• B)The interest expense over the life of the bonds will be less than the cash interest payments.
• C)The present value of the bonds' future cash flows is less than the bonds' maturity value.
• D)The book value of the bond liability decreases when interest payments are made on the due dates.

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Definitions:

Adverse Selection

Form of market failure resulting when products of different qualities are sold at a single price because of asymmetric information, so that too much of the low-quality product and too little of the high-quality product are sold.

High Blood Sugar

A condition characterized by an excessively high level of glucose in the blood, commonly associated with diabetes.

Excess Drinking

The consumption of alcohol beyond what is considered moderate or socially acceptable, often leading to adverse health and social effects.

Asymmetric Information

Situation in which a buyer and a seller possess different information about a transaction.