5. Under the effective - interest method of amortizing bond premiums, the interest expense recorded for each semi-annual interest payment: A. will equal the amount of cash paid for each semi-annual interest payment B. is at the same percentage of the bond's carrying value for every interest payment C. will increase over the life of the bond D. is equal to the carrying value of the bond times the contract rate of interest for each semi-annual interest period The premium on bonds payable: A. decreases the amount of cash paid to bondholders over the stated rate of interest B. increases interest expense on the income statement C. reduces interest expense on the income statement D. increases the amount of cash paid to bondholders over the stated rate of interest 13. McPherson Corporation issued $100,000 of 10%, five-year bonds on January 1, 2017, for $92,280. The market interest rate when the bonds were issued was 12%. Interest is paid semi-annually on January 1 and July 1. The first interest payment is July 1, 2017. McPherson's journal entry to record the interest expense on July 1, 2017, will include a A. credit to Interest Expense. B. debit to Premium on Bonds Payable. C. debit to Bonds Payable. D. credit to Discount on Bonds Payable. 1 Mistaya Company sells $100,500 of 16%, 19-year bonds for 88 on April 1, 2017. The market rate of interest on that day is 6%. Interest is paid each year on April 1. The entry to record the sale of the bonds on April 1 would be which of the following? O A. Cash 88,440 12,060 Discount on Bonds Payable Bonds Payable 100,500 OB. Cash 100,500 Bonds Payable 100,500 Cash 100,500 12,060 Discount on Bonds Payable Bonds Payable 88,440 OD Cash 88,440 Bonds Payable 88,440 Determine whether the following bonds will be issued at face value, a premium, or a discount: a. The market interest rate is 9%. Star Inc. issues bonds with a stated rate of 8 1/2%. b. Charger Corporation issued 7 1/2% bonds when the market rate was 7 1/2%. (2) c. Explorer Corporation issued 8% bonds when the market interest rate was 6 7/8%. (3) Tundra Company issued bonds that pay cash interest at the stated interest rate of 7%. At the d. date of issuance, the market interest rate was 8 1/4%. (4) (1) (2) (3) (4) Discount Face value Premium Discount Face value Premium Discount Face value Premium Discount Face value Premium