Question
On July 1, 2016, Garden Works, Inc. issued $301,100 of ten-year, 7% bonds for $308,500. The bonds were dated July 1, 2016, and semi-annual interest
On July 1, 2016, Garden Works, Inc. issued $301,100 of ten-year, 7% bonds for $308,500. The bonds were dated July 1, 2016, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. Which of the following statements is incorrect?
The semi-annual interest expense is $740 less than the semi-annual interest payment.
The market rate of interest was less than the coupon rate of interest on July 1, 2016.
The interest expense during the life of the bonds is $7,400 less than the cash interest payments during the life of the bonds.
The book value of the bond liability decreases by $740 per year.
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