Choice "B" is correct. Bonds payable is equal to the face value of the bonds, and the premium at the time of sale is equal to the difference between the issue price and the face value. The carrying value is the combined premium and face value. Interest payable is computed as the stated rate of 10% times the face amount of the bonds for six months. Interest expense is equal to the carrying value times the market rate of 9% for six months. The computed amortization reduces the premium and carrying value. The following schedule organizes the data and displays computations by account.

Interest expense$2,134,000 × 9% × 1/2$96,030 Interest payment$2,000,000 × 10% × 1/2$100,000 Premium amortization$100,000 - $96,030$3,970 Unamortized premium$134,000 - $3,970$130,030Choice "c" is incorrect. The period of amortization is six months, not one year.
Choice "d" is incorrect. The period of amortization is six months, not one year, and the amortization reduces the carrying value and premium; it does not increase them.
Choice "a" is incorrect. The amortization reduces the premium and carrying value; it does not increase these amounts.