The premium on bonds payable:
A) increases interest expense on the income statement
B) reduces interest expense on the income statement
C) decreases the amount of cash paid to bondholders over the stated rate of interest
D) increases the amount of cash paid to bondholders over the stated rate of interest

Question

Quizplus · Accepted Answer

A premium on bonds payable occurs when bonds are issued for more than their face value. This premium effectively reduces the interest expense on the income statement over the life of the bonds because the issuer receives more cash upfront than the amount to be repaid, thus reducing the effective interest rate.

The Premium on Bonds Payable