the amount in excess of face value(maturity value) at which a bond is issued. A bondmay be issued at a premium if the interest rate on the bond exceeds the market interest rate or it is from a financially strong company. For example, if a $100,000 bond was issued at 106, the bond premium is $6000 ($100,000 x 6%). Bond premium is added to the bond payable account under noncurrent liabilities to arrive at the carrying value of the bond. The bond premium account is amortized each year so that at maturity the bond will equal its face value. The amortization entry each year is to debit bond premium and credit interest expense. When a bond is issued at a premium, the effective interest rateis less than the nominal interest rate.
amount the purchaser pays in buying a bond that exceeds the face or call value of the bond. The premium can be amortized each year by the bondholder, to reflect that the true interest rate is less than the coupon rate. amortization is elective for taxable bonds and not allowed for tax-exempt bonds.
