71.Selling the bonds at a premium has the effect of
a.raising the effective interest rate above the stated interest rate
b.attracting investors that are willing to pay a lower rate of interest than on similar bonds
c.causing the interest expense to be higher than the bond interest paid
d.causing the interest expense to be lower than the bond interest paid
72.If bonds are issued at a discount, it means that the
a.bondholder will receive effectively less interest than the contractual rate of interest
b.market interest rate is lower than the contractual interest rate
c.market interest rate is higher than the contractual interest rate
d.financial strength of the issuer is suspect
73.The Levi Company issued $200,000 of 12% bonds on January 1 at face value. The bonds pay interest semiannuallyon January 1 and July 1. The bonds are dated January 1, and mature in five years, on January 1. The total interestexpense related to these bonds for the current year ending on December 31 is
a. $2,000
b. $6,000
c. $18,000
d. $24,000
74.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.
75.If the straight-line method of amortization of bond premium or discount is used, which of the following statements istrue?
a.Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
b.Annual interest expense will remain the same over the life of the bonds with the amortization of bonddiscount.
c.Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
d.Annual interest expense will increase over the life of the bonds with the amortization of bond discount.
76.Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when themarket rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount orpremium. Which of the following statements is true?
a.The carrying amount increases from its amount at issuance date to $1,000,000 at maturity.
b.The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
c.The amount of annual interest paid to bondholders increases over the 10-year life of the bonds.
d.The amount of annual interest expense decreases as the bonds approach maturity.
77.Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when themarket rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount orpremium. Which of the following statements is true?
a.The amount of annual interest paid to bondholders remains the same over the life of the bonds.
b.The amount of annual interest expense decreases as the bonds approach maturity.
c.The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.
d.The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.
78.The entry to record the amortization of a premium on bonds payable on an interest payment date would
a.a debit to Premium on Bonds Payable and a credit to Interest Revenue
b.a debit to Interest Expense and a credit to Premium on Bond Payable
c.a debit to Interest Expense and Premium on Bonds Payable and a credit to Cash
d.a debit to Bonds Payable and a credit to Interest Expense
79.The adjusting entry to record the amortization of a discount on bonds payable is
a.debit Discount on Bonds Payable, credit Interest Expense
b.debit Interest Expense, credit Discount on Bonds Payable
c.debit Interest Expense, credit Cash
d.debit Bonds Payable, credit Interest Expense
80.The journal entry a company records for the issuance of bonds when the contract rate and the market rate are thesame is to
a.debit Bonds Payable, credit Cash
b.debit Cash and Discount on Bonds Payable, credit Bonds Payable
c.debit Cash, credit Premium on Bonds Payable and Bonds Payable
d.debit Cash, credit Bonds Payable