Eaton Company Issued Bonds When the Stated Rate of Interest

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.