Final answer:
The correct entry to record amortization of the bond premium in government-wide financial statements is to debit the Premium on bonds payable and credit Interest expense, reflecting the gradual recognition of the prepayment of interest over the bond's life.
Step-by-step explanation:
When converting to government-wide financial statements, the correct entry to record the amortization of the premium on a bond would be to debit the Premium on bonds payable and credit Interest expense. This is because the premium on bonds payable is essentially a prepayment of interest expense that is recognized over the life of the bond.The premium occurs when the bond is sold for more than its face value, and the amortization of this premium serves to reduce the amount of interest expense reported in the financial statements over the period. Interest Expense is the correct account to credit as it reflects the economic reality that over the life of the bond, the issuer effectively pays less interest due to the premium paid by the bondholders.When converting to government-wide financial statements, the entry to record the amortization of the premium on a bond would be to debit the Bond Payable and credit the Premium on bonds payable (option C).
Amortizing the premium on a bond means gradually reducing the premium amount over the life of the bond. This reduction is recorded by debiting the Bond Payable and crediting the Premium on bonds payable.For example, let's say you have a bond with a $10,000 face value and a premium of $1,000. Each year, you could record a journal entry to debit the Bond Payable by $200 and credit the Premium on bonds payable by $200 until the premium is fully amortized.