Question

Financial Statement Presentation of Bond Accounts - Indicate the proper financial statement classification for each of the following accounts:

Gain on Bond retirement (material amount)
Discount on Long-term Bonds Payable
Mortgage Notes Payable
Long-term Bonds Payable
Bond Interest Expense
Bond Interest Payable
Premium on Long-term Bonds Payable

Answer 1

1. Gain on retirement of Bond - it occurs when the amount to be settled is less than recognized liability for the bond. It has to be treated as income and liability to be reduced.

It has to be classified as other income.

2. Discount on bonds payable is a liability valuation account, that reduces the face amount of the related liability(contra-account).

3. mortgage notes payable are reported in the balance sheet as long term liability.

4. Long term bonds payable are reported in the balance sheet as long term liability.

5. Bond interest expense is to be reported as expense in the income statement.

6. Bond interest payable is to be reported as an current liability in balance sheet.

7. Premium on Long-term Bonds Payable is to be reported as an liability in the balance sheet.

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