Multiple Choice
Long-term debts (liabilities) for corporations and governments are called:
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9. Current Liabilities
Types of Liabilities
Multiple Choice
Any unamortized premium should be reported on the balance sheet of the issuing corporation as:
A
a deduction from the face value of bonds payable under long-term liabilities
B
a current liability
C
an addition to retained earnings
D
an addition to the face value of bonds payable under long-term liabilities
Verified step by step guidance1
Understand the concept of bond premium: A bond premium occurs when bonds are issued at a price higher than their face value. This happens when the stated interest rate on the bond is higher than the market interest rate.
Recognize how unamortized bond premium is treated: Unamortized bond premium represents the portion of the premium that has not yet been allocated to interest expense over the life of the bond.
Identify the correct reporting method: According to accounting standards, any unamortized premium is added to the face value of bonds payable on the balance sheet under long-term liabilities. This reflects the total liability owed by the issuing corporation.
Understand why other options are incorrect: The premium is not deducted from the face value of bonds payable, nor is it classified as a current liability or added to retained earnings. These treatments would misrepresent the financial position of the corporation.
Apply this knowledge to the balance sheet: When preparing the balance sheet, ensure that the unamortized premium is combined with the face value of bonds payable under the long-term liabilities section to accurately reflect the total bond liability.
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