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Horngren'S Financial And Managerial Accounting
Found in: Page 654

Short Answer

When does a premium on bonds payable occur?

The stated interest rate is an interest that the issuer of the bonds provides.

See the step by step solution

Step by Step Solution

Step 1: Definition of bond

Bonds are long-term debt where a company raises money from investors.

Step 2: Occurrence of compensation on bonds.

Premium bonds' premium occurs when the stated interest rate is more than the market interest rate. If the market rate is less than the effective interest, the investor pays extra to reduce this gap.

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