Asked by Taylor Wenzel on Jun 19, 2024
Verified
If a company sells its 20-year bonds at a premium, the premium account should be reported on the balance sheet as a(n)
A) unearned liability
B) addition to the bonds payable
C) accrued expense
D) deduction from the bonds payable
Premium Account
An account credited with the amount by which a security is issued above its par value, featuring benefits or terms superior to those of standard accounts.
Unearned Liability
An obligation that arises when a business receives payment for goods or services that have not yet been delivered or performed, also known as deferred revenue.
Bonds Payable
A financial accounting term for the outstanding debt a company owes to bondholders, to be paid at a future date.
- Determine and implement appropriate amortization techniques for bond discounts or premiums.
Verified Answer
HS
Hayden SnydersJun 21, 2024
Final Answer :
B
Explanation :
When a company sells its 20-year bonds at a premium, the amount received from investors exceeds the face value of the bonds. The premium represents the difference between the amount received and the face value of the bonds.
According to GAAP (Generally Accepted Accounting Principles), the premium account should be reported on the balance sheet as an addition to the bonds payable. This means that the total amount of the bonds reported on the balance sheet will include both the face value and the premium, and the premium will be added to the bonds payable.
Therefore, Choice B is the correct answer.
According to GAAP (Generally Accepted Accounting Principles), the premium account should be reported on the balance sheet as an addition to the bonds payable. This means that the total amount of the bonds reported on the balance sheet will include both the face value and the premium, and the premium will be added to the bonds payable.
Therefore, Choice B is the correct answer.
Learning Objectives
- Determine and implement appropriate amortization techniques for bond discounts or premiums.