Answer the following statements true (T) or false (F)

Question

1. The discount on bonds payable becomes interest expense through a process of depreciation.
2. The amortization of bond premium increases interest expense over the life of the bonds.
3. The face value of a bond payable minus the current balance of the discount account or plus the current balance of the premium account is the bond's carrying amount.
4. Contra accounts have the same normal balance as the related account and are added to the related account on the balance sheet.
5. The balance in the Bonds Payable account is a credit of $92,000. The balance in the Premium on Bonds Payable account is a credit of $1,990. The bond's carrying amount is $93,990.

Answer 1

1. FALSE - Explanation: The discount on bonds payable becomes interest expense through a process of amortization
2. FALSE - Explanation: The amortization of bond premium decreases interest expense over the life of the bonds.
3. TRUE
4. FALSE - Explanation: Adjunct accounts have the same normal balance as the related account and are added to the related account on the balance sheet.
5. TRUE