Question

24. The balance in Premium on Bonds Payable a. should be reported on the balance sheet as a deduction from the related bonds payable b. should be allocated to the remaining periods for the life of the bonds by the straight- line method, if the results obtained by that method materially differ from the results that would be obtained by the interest method c. would be added to the related bonds payable on the balance sheet d. should be reported in the paid-in capital section of the balance sheet

Answer 1

B

Say premium on redemption of bonds is 5 per bond and issued for a period of five years

If they are to be redeemed after 5 years and face value is 100 say we need to pay 105

By matching concept since the benefits accrue throught out 5 years it is reasonable to write off throught out period which benefits from such bonds will be accrued i.e. 5 years