Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Premium on Bonds

Financial Accounting

11. Long Term Liabilities

Premium on Bonds

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Multiple Choice

The Premium on Bonds Payable account is classified as which of the following on the balance sheet?

A current asset account

An adjunct liability account

A contra-liability account

An owner's equity account

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Verified step by step guidance

Understand the concept of 'Premium on Bonds Payable': This account represents the amount by which the bond's issue price exceeds its face value. It arises when bonds are issued at a premium, meaning investors are willing to pay more than the face value due to favorable interest rates.

Recognize the classification of 'Premium on Bonds Payable': It is not an asset, equity, or contra-liability account. Instead, it is classified as an adjunct liability account, which increases the carrying amount of the bonds payable on the balance sheet.

Learn the role of adjunct accounts: Adjunct accounts are used to add to the value of a related account. In this case, the Premium on Bonds Payable adds to the Bonds Payable account, reflecting the total liability owed to bondholders.

Understand the presentation on the balance sheet: The Premium on Bonds Payable is shown alongside the Bonds Payable account under long-term liabilities. The total of Bonds Payable plus the premium represents the carrying amount of the bond liability.

Review the importance of proper classification: Accurate classification ensures that financial statements provide a clear and truthful representation of the company's financial position, aiding stakeholders in making informed decisions.