A bond premium:
A)arises when interest payments are higher than the cost of borrowing.
B)is essentially free money.
C)arises when the interest payments are less than the cost of borrowing.
D)is reported on the income statement as a gain on the issuance of a bond.

Question

Quizplus · Accepted Answer

A premium represents the additional cash over the face value that was received at the time the bond was issued.It represents a reduced cost of borrowing,so it is amortized each period,resulting in interest expense that is less than the interest each period.

A Bond Premium