Which of the following statements regarding amortization is true?
A) Amortization of the premium causes the premium on bonds payable account to increase.
B) Amortization of the premium causes the amount of interest expense to increase.
C) Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium.
D) Amortization of premium continues over the life of the bond until the balance in the account is reduced to zero.

Question

Quizplus · Accepted Answer

Amortization of premium on bonds payable is a process where the premium amount (the amount by which the bond's selling price exceeds its face value) is gradually reduced over the life of the bond. This reduction is done by allocating a portion of the premium to reduce the amount of interest expense recognized in each period. Therefore, the correct statement is that the amortization of premium continues over the life of the bond until the balance in the account is reduced to zero, which aligns with choice D. This process ensures that by the time the bond matures, the book value of the bond equals its face value.

Which of the Following Statements Regarding Amortization Is True