A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when themarket rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount orpremium. Which of the following statements is true?
a. The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginningof the year.
b. The amount of the annual interest expense gradually decreases over the life of the bonds.
c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance atmaturity.
d. The bonds will be issued at a premium.
c
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