Question

The carrying amount of bonds issued at a premium is calculated by:

a) subtracting Interest Payable from Bonds Payable
b) subtracting Premium on Bonds Payable from Bonds Payable
c) adding Premium on Bonds Payable to Bonds Payable
d) adding Interest Payable to Bonds Payable

Answer 1

The carrying amount of bonds issued at a premium is found by adding the premium to the bonds payable. This adjustment reflects the extra amount investors pay over the bond's face value.

Step-by-step explanation:

The carrying amount of bonds issued at a premium is calculated by adding Premium on Bonds Payable to Bonds Payable. When a bond is issued at a premium, it means that the bond is sold for more than its face value. The bond's premium is an additional amount investors are willing to pay above the face value. Therefore, the correct answer to the calculation is c) adding Premium on Bonds Payable to Bonds Payable.

For example, if bonds with a face value of $1,000 are sold for $1,050, the $50 is considered the premium and should be added to the bonds payable account. This premium is amortized over the life of the bond, reducing the carrying amount of the bond over time. On financial statements, the carrying amount reflects the face value plus any unamortized premiums or less any unamortized discounts.