Final answer:
Premium on bonds payable is added to the bonds payable on the balance sheet, representing an amount over the bond's face value. This premium is amortized over the life of the bond.
Step-by-step explanation:
The premium on bonds payable is added to bonds payable on the balance sheet. When a bond is issued at a premium, it means that the bond is sold for more than its face value. The premium on bonds payable account is a contra account to bonds payable that increases its carrying value and is shown in the equity section of the balance sheet. Over the life of the bond, this premium is amortized to interest expense, which reduces the amount of interest expense reported on the income statement.