Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:

Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value

01/01/2021 $ 8,640,967

06/30/2021 $ 300,000 $ 345,639 $ 45,639 8,686,606

12/31/2021 300,000 347,464 47,464 8,734,070

06/30/2022 300,000 349,363 49,363 8,783,433

12/31/2022 300,000 351,337 51,337 8,834,770

What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six-month rate.)

A) 3%.

B) 4%.

C) 6%.

D) 8%.

Answer: C

When bonds are retired before their maturity date:

A) GAAP has been violated.

B) The issuing company will always report a non-operating gain.

C) The issuing company will always report a non-operating loss.

D) The issuing company may report a non-operating gain or loss.

Answer: D

An amortization schedule for a bond issued at a premium:

A) Has a carrying value that increases over time.

B) Is contained in the balance sheet.

C) Is a schedule that reflects the changes in the carrying value of the bond over its term to maturity.

D) All of the other answer choices are correct.

Answer: C