The amortization of a premium on bonds payable:
A)decreases the carrying value of the bonds
B)increases the amount of interest expense recorded for the bonds
C)decreases the amount of cash paid at the interest date
D)has no effect on the amount of interest expense recorded for the bonds

Question

Quizplus · Accepted Answer

Amortization of a premium on bonds payable decreases the carrying value of the bonds. This is because the premium represents an amount paid above the face value of the bond, and over time the premium is reduced to bring the carrying value of the bond in line with its face value. The amortization of a premium has no effect on the amount of interest expense recorded for the bonds, as this is determined by the stated interest rate and the face value of the bond. It also has no effect on the amount of cash paid at the interest date, as this is determined by the stated interest rate and the face value of the bond.

The Amortization of a Premium on Bonds Payable