Using straight-line amortization,when a bond is sold at a premium:
A)the amortized premium is added to the interest payable to calculate interest expense.
B)bonds payable rises by a constant amount each year.
C)interest expense is calculated by subtracting the amortized premium from the interest payment that is to be made.
D)interest expense rises each year.

Question

Quizplus · Accepted Answer

With straight-line amortization, the premium is evenly amortized and added to the interest payable each period, so the interest expense is actually lower than the interest payment. Therefore, to calculate the correct interest expense, the amortized premium must be subtracted from the interest payment. The bonds payable will still increase each year, but this is not related to the premium amortization.

Using Straight-Line Amortization,when a Bond Is Sold at a Premium