Soiling the bonds at a premium has the effect of raising the effective interest

Question

Soiling the bonds at a premium has the effect of raising the effective interest rate above the stated interest rate attracting Investors that are willing to pay a lower rate of interest than on similar bonds causing the interest expense to be higher than the bond interest paid causing the interest expense to be lower than the bond interest paid. The interest expense recorded on an interest payment date is increased only if the market rate of interest is less than the stated rate of interest on that date by the amortization of premium on bonds payable by the amortization of discount on bonds payable only if the bonds were sold at face value.

Explanation / Answer

Ans;

18) d. causing the total cost of borrowing to be lower than the bond interest paid

19) C.by the amortization of discount on bonds payable

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