Which of the following is true of a premium on bonds payable?

Question

Quizplus · Accepted Answer

A premium on bonds payable is created when a bond is sold at a price higher than its face value. The premium represents the additional interest that the issuer pays to investors beyond the stated interest rate of the bond. The premium is initially recorded as a liability on the issuer's balance sheet, but it decreases over time as the bond approaches its maturity date. This decrease is reflected through amortization entries made by the issuer that reduce the premium balance until it reaches zero at maturity. Therefore, the correct answer is D: it decreases when amortization entries are made until its balance reaches zero at the maturity date.

Which of the Following Is True of a Premium on Bonds