Indicate whether each of the following statements about bonds payable is true or false.________ a) Premium on Bonds Payable is recorded when bonds are issued at less than their face value.________ b) Premium on Bonds Payable is a liability account.________ c) The balance in the Discount on Bonds Payable account increases liabilities.________ d) Discount on Bonds Payable is an expense account.________ e) A discount on bonds payable occurs when the stated interest rate on the bonds is less than the market or effective interest.
What will be an ideal response?
a) F b) T c) F d) F e) T
a) This is false. Premium on Bonds Payable is recorded when bonds are issued for more than their face value.
b) This is true. Premium on Bonds Payable is a liability account, while Discount on Bonds Payable is a contra-liability account.
c) This is false. The balance in Discount on Bonds Payable reduces liabilities. It is a contra-liability.
d) This is false. Discount on Bonds Payable is a contra-liability, not an expense account.
e) This is true. Issuing bonds with a stated rate lower than the market rate results in a discount.
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