[jking12]

I was working through some Wiley questions this morning and got this one wrong and I think (hope) I was right:

“How would the amortization of premium on bonds payable affect each of the following?

Carrying Value of the Bond, Net Income

a. Increase, Decrease

b. Increase, Increase

c. Decrease, Decrease

d. Decrease, Increase

My answer was (c), that it would decrease both because of the following JE (which is the JE Becker has)

Dr. Bond Interest Expense xxx

Dr. Premium on bonds payable xxx

Cr. Cash xxx

This would reduce net income (Dr. to expense) and reduce the carrying amount (Dr. to Premium)

Wiley’s answer was (d). The JE shows the following, which would increase (?) net income and decrease the carrying amount.

Dr. Premium on Bonds Payable xxx

Cr. Interest Expense xxx

Any clarification would be appreciated!

Thanks

FAR - (8/2012) 87
BEC - (11/2012) 86
REG - 73 (retake July 2013)
AUD - 71 (retake April 2013)

[mmcgrad1]

Let's say your interest payment is $100 and your amortizing the premium $5

Entries:

Payment-

Interest Expense 50

Cash 50

Amortization-

Premium on Bond Payable $5

Interest Expense $5

The actual entry for the amortization reduces your interest expense, thus increasing your NI.

NIU CPA Review Correspondence is awesome!

I passed all four sections on the first attempt

[Anonymous]

You have to split it out. They're asking about the amortization portion of the entry. Ignore the interest payment. They're very tricky!!!

[jking12]

Makes sense! Thanks!!

FAR - (8/2012) 87
BEC - (11/2012) 86
REG - 73 (retake July 2013)
AUD - 71 (retake April 2013)

[Author]

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