1. Consider the following statements:

Statement 1. When amortizing a bond discount, the bonds amortized cost decreases each period as the interest expense increases.

Statement 2. When amortizing a bond premium, the bonds amortized cost increases each period as the interest expense increases.

a. Only statement 2 is correct

b. Only statement 1 is correct

c. Neither of the statements is correct

d. Both statements are correct

2. The amortization on a bond premium:

a. Is calculated by multiplying the bonds face value by the coupon rate, then adding the regular interest payment

b. Is calculated by multiplying the market interest rate by the bonds carrying value

c. Is calculated by multiplying the market interest rate by the bonds face value

d. Is calculated by multiplying the bonds carrying value by the market rate, then subtracting the regular interest payment

3. On July 31, 2018, Snowday Corporation issued $100,000, 5%, 20-year bonds for $88,443 when the market interest rate was 6%. The bonds pay semi-annual interest on July 31 and January 31. Snowday uses the effective interest method to amortize its bond discount or premium, and it has a January 31 year-end. How much would interest expense from these bonds be recorded in Snowdays financial statements for the year ended January 31, 2019?

a. $5,153

b. $2,500

c. $153

d. $2,653

4. A type of amortization method used to amortize bond discount/premium that records interest expense based on the amortized cost of the bondthat is, on the bonds book value at the end of the previous period is called:

a. None of the available choices

b. Straight-line amortization method

c. Effective-interest amortization method

d. Units of production method

5. On July 31, 2018, Hummbug Corporation issued $100,000, 5%, 20-year bonds for $113,678 when the market interest rate was 4%. The bonds pay semi-annual interest on July 31 and January 31. Hummbug uses the effective interest method to amortize its bond discount or premium, and it has a January 31 year-end. How much would interest expense from these bonds be recorded in Hummbugs financial statements for the year ended January 31, 2019?

a. $2,500

b. $4,774

c. $226

d. $2,274