D is corrent. When the premium on bonds payable is amortized, the following entry is made:| Premium on bonds payable | xxx | | | Interest expense | xxx |
This entry has several effects. First, it reduces the amount of the premium. Because the carrying value of the bonds is the face value of the bonds plus the unamortized premium, amortization of the premium serves to reduce the carrying value. Second, amortization of the premium decreases interest expense, thus increasing net income.A is incorrect. When the premium on bonds payable is amortized, the following entry is made:| Premium on bonds payable | xxx | | | Interest expense | xxx |
This entry has several effects. First, it reduces the amount of the premium. Because the carrying value of the bonds is the face value of the bonds plus the unamortized premium, amortization of the premium serves to reduce the carrying value. Second, amortization of the premium decreases interest expense, thus increasing net income.B is incorrect. When the premium on bonds payable is amortized, the following entry is made:| Premium on bonds payable | xxx | | | Interest expense | xxx |
This entry has several effects. First, it reduces the amount of the premium. Because the carrying value of the bonds is the face value of the bonds plus the unamortized premium, amortization of the premium serves to reduce the carrying value. Second, amortization of the premium decreases interest expense, thus increasing net income.C is incorrect. When the premium on bonds payable is amortized, the following entry is made:| Premium on bonds payable | xxx | | | Interest expense | xxx |
This entry has several effects. First, it reduces the amount of the premium. Because the carrying value of the bonds is the face value of the bonds plus the unamortized premium, amortization of the premium serves to reduce the carrying value. Second, amortization of the premium decreases interest expense, thus increasing net income. |
