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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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The premium on bonds payable account is shown on the balance sheet as

  1. A contra asset.
  2. A reduction of an expense.
  3. An addition to a long-term liability.
  4. A subtraction from a long-term liability.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To choose:

The correct Statement about Premium on bonds payable.

Explanation

Explanation for correct answer:

Premium on bonds payable is added with the Bonds Payable par value amount while presenting it on the Liabilities section of the balance sheet. So it is an addition to long term liability.

Hence, the correct option is c.

Explanation for incorrect answers:

a...

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