Is 'Premium on Bonds Payable' considered a contra account?

• A. Yes, it is a contra revenue account.
• B. No, it is an expense account related to bond issuance.
• C. No, it is an adjunct account that increases the carrying value of bonds payable.
• D. Yes, it is a contra account that decreases the carrying value of bonds payable.

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'Premium on Bonds Payable': It represents the amount by which the bond's issue price exceeds its face value. This occurs when bonds are issued at a price higher than their par value due to favorable market conditions.
2. Clarify the classification of 'Premium on Bonds Payable': It is not a contra account. Contra accounts are used to reduce the value of a related account, such as 'Discount on Bonds Payable' which decreases the carrying value of bonds payable.
3. Recognize that 'Premium on Bonds Payable' is an adjunct account: An adjunct account increases the carrying value of the related account—in this case, bonds payable. It is added to the bonds payable account on the balance sheet.
4. Understand the impact on financial statements: The premium increases the carrying amount of the bonds payable, which will be amortized over the life of the bond using methods such as the straight-line method or the effective interest method.
5. Review the correct answer: Based on the explanation, the correct answer is 'No, it is an adjunct account that increases the carrying value of bonds payable.'