Question
1. At the start of Year One, Bellview Corporation issues 100 bonds, each with a face value of $1,000 and a stated annual cash interest
1. At the start of Year One, Bellview Corporation issues 100 bonds, each with a face value of $1,000 and a stated annual cash interest rate of 6 percent (payable every December 31), for $86,000 to yield an effective interest rate of 8 percent. Interest expense will be recognized by Bellview using the effective rate method. These bonds were issued to the public at a time when companies in the same industry as Bellview were selling similar bonds at a 7 percent yield rate. Which of the following is not true?
a. To the investors who acquired these bonds, this company and its bond contract looked relatively safe.
b. This company will recognize interest expense for Year One as $6,880 (rounded).
c. This company will recognize interest expense for Year Two as $6,950 (rounded).
d. The 7 percent rate has no impact on the accounting recorded by Bellview.
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