The account entitled Premium on Bonds Payable:
A)increases when amortization entries are made.
B)appears on the balance sheet of the issuer as a deduction from bonds payable.
C)decreases when amortization entries are made and its balance is equal to zero at the maturity date of the bond.
D)is a contra account with a normal debit balance.

Question

Quizplus · Accepted Answer

The Premium on Bonds Payable is a liability account with a normal credit balance.
When bonds issue at a premium,the bond issuer receives more cash on the issue date than it repays on the maturity date.The premium is a reduction in the company's cost of borrowing.The bond amortization process makes the Interest Expense smaller than the actual interest payment and,at the same time,causes the balance in Premium on Bonds Payable to decline each period over the life of the bonds until it is equal to zero at the maturity date.

The Account Entitled Premium on Bonds Payable