As the Premium on Notes Payable account is reduced:
A)Interest Expense is increased
B)the market value of the note is also reduced
C)the carrying value of the note is decreased
D)the face rate of interest is increased

Question

Quizplus · Accepted Answer

The Premium on Notes Payable account represents the amount paid in excess of the face value of the note. As this account is reduced, it means that the excess amount is being amortized and the carrying value of the note is decreased. This results in a lower interest expense as well, but it is not directly related to the premium account being reduced. The market value of the note may be affected by various factors, but the reduction in premium alone does not necessarily affect it. The face rate of interest is not related to the premium account, as it is a fixed rate specified in the note agreement.

As the Premium on Notes Payable Account Is Reduced