Final answer:
The bond indeed sells at a discount if the stated rate is lower than the market rate, and the debit to Interest Expense will be based on the higher market rate, making it greater, while the credit to Cash is based on the stated rate, making it less.
Step-by-step explanation:
The statement that the bond sold at a discount because the stated rate of 10% is lower than the market rate of interest is true. Bonds often sell at a discount when their stated interest rates are less than the current market rates because investors will only buy these bonds if they are priced less than their face value to compensate for the lower interest earnings. As for the entries, the debit to the Interest Expense account reflects the effective interest rate method of amortization and is higher because it is based on the market rate of interest at the time of bond issuance, which is higher than the stated rate. The credit to Cash will indeed be less because the actual cash paid is based on the bond's stated interest rate, which is lower.
The statement is False. When a bond is sold at a discount, it means that the market rate of interest is higher than the stated rate. This happens when the demand for the bond is low, causing its price to decrease. As a result, the debit to Interest Expense will be lower because it is based on the lower market rate, while the credit to Cash will be higher because it is based on the higher stated interest rate.