21) Interest expense on bonds exhibits the following attributes except
A) interest expense is greater than the cash payment for interest when a bond is sold at a premium and effective-interest amortization is used.
B) interest expense is the same dollar amount for every interest payment period, if a bond was issued at a discount and straight-line amortization is used.
C) interest expense is greater than the cash payment for interest when a bond is sold at a discount, regardless of whether straight-line or effective-interest amortization is used.
D) interest expense equals the cash payment for interest if a bond is sold at par.
E) interest expense becomes a larger dollar amount over time when a bond is sold at a discount and effective-interest amortization is used.
22) Seesten Company was ready to sell 8-year, 10% bonds at a face value of $2,000,000 on January 1, 20X9. Because of delays and market conditions, the bonds were not sold until March 1, 20X9. The bonds pay interest every June 30 and December 31. The bonds were sold at par plus accrued interest. What are the necessary journal entries for Seesten Company on March 1, 20X9, and June 30, 20X9?
March 1, 20X9 June 30, 20X9
A) Cash2,033,333Interest Payable33,333
Bonds Payable2,000,000Interest Expense66,667
B) Cash2,033,333Interest Expense100,000
C) Cash2,033,333Interest Expense97,917
Bonds Payable 2,000,000Premium on Bond
Premium on BondPayable2,083
D) Cash2,033,333Interest Expense66,667
Bonds Payable2,000,000Premium on Bond
Premium on BondPayable33,333
E) Cash1,066,667Interest Payable66,667
Bonds Payable2,000,000Interest Expense133,333
23) Generally bonds are called at an amount above par, referred to as a call discount.
24) Underwriters are a group of investment bankers who buy an entire bond or stock issue from a corporation and then sell the issue to the general investing public.
25) Zero coupon notes do not provide interest payments.
26) Non-interest-bearing notes do not make any interest payments over the life of the note.
27) A bond issued at a price above its face value is sold at a discount.
28) The market or effective rate of interest is used to calculate the actual amount of interest bondholders will receive from a company issuing bonds.
29) An investor purchasing bonds between interest dates must pay accrued interest on the bonds.
30) Using the effective-interest method of amortization, interest expense is based on the net liability at the beginning of the current period times the effective interest rate for the interest period.