The total bond premium is equal to the market value of the bond less the face value. For instance, with a 10-year bond paying 6% interest that has a $1,000 face value and currently costs $1,080 in the market, the bond premium is the $80 difference between the two figures.

What accounts are affected when bonds are issued at a premium?

If the bonds’ interest rate is greater than the market rate when the bonds are offered, the bonds will sell at a premium. Any discount or premium on the bonds is recorded in a separate account. Another account is used to record the bond issue costs such as legal fees, auditing fees, registration fees, etc.

What kind of account is the premium on bonds payable?

liability
Premium on bonds payable is a contra account to bonds payable that increases its value and is added to bonds payable in the long‐term liability section of the balance sheet.

How does interest expense decrease over the life of a bond?

The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used b. Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method c.

Which is true about amortization of discounts and premiums?

Which of the following statements regarding the amortization of discounts and premiums on bonds is false? a. The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used b.

How does amortization affect the carrying value of a bond?

After recording the interest expense, the amortization will decrease the bond carrying value c. The difference between the interest expense and the interest to be paid is the bond’s par value d. After recording the interest expense, the amortization will increase the bond carrying value

What happens to Parker Company’s bond carrying value?

After recording the interest expense, the amortization will increase the bond carrying value Parker Company issued ten-year, 9%, bonds payable in 2014 at a premium. During 2014, the company’s accountant failed to amortize any of the bond premium.