A corporation issues for cash $1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of

Question

A corporation issues for cash $1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of a bond discount or premium. Which of the following is true?

a. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.
b. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
c. The amount of the annual interest expense gradually decreases over the life of the bonds.
d. The amount of the annual interest expense is computed at 8% of the bond carrying amount at the beginning of the year.

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