Q13RQ - Horngren'S Financial And Managerial Accounting

Question

What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?

Step-by-Step Solution

Answer

The premium on bonds payable is known as the excess amount over the face value of the bond.

Step 1: Definition of liabilities

Liabilities is the amount taken by the company to fund the operation of the company. Liabilities is the legal obligation of the company which company return after fixed period of time.

Step 2: Premium on bonds payable

The premium on bonds payable is an adjunct account. The normal balance of this account is credit.  Premium on bonds payable is deducted from the bonds payable to determine the carrying amount.