When recording bond issuance costs for fees paid to underwriters:
A)The fee is recorded in a bond issuance costs account regardless of whether the bonds were issued at a discount or at a premium.
B)The fee is recorded as a reduction in the bond discount account if the bonds were issued at a discount.
C)The fee is recorded as a reduction in the bond premium account if the bonds were issued at a premium.
D)The fee is recorded as a bond issuance expense regardless of whether the bonds were issued at a discount or at a premium.

Question

Quizplus · Accepted Answer

When bonds are issued at a premium, the issuer receives more cash than the face amount of the bond. The premium is then transferred to a liability account called "Premium on Bonds Payable." When recording bond issuance costs, they are considered a reduction of the premium account because they decrease the net amount of cash received from the bond issuance.

When Recording Bond Issuance Costs for Fees Paid to Underwriters