If a corporation issues $300,000 of bonds at a price of 102, it will be issuing the bonds at a premium of 2%. The journal entry will include a debit to Cash for $306,000; a credit to Bonds Payable for $300,000; and a credit to Premium on Bonds Payable for $6,000. Since a credit balance is the normal balance for a liability account, the account Premium on Bonds Payable cannot be referred to as a contra account. Here is where the term adjunct account is used. Immediately after the bonds are issued, the bonds will have a carrying value of $306,000 ($300,000 PLUS $6,000).
Some people might use the term adjunct accounts for both the Discount on Bonds Payable and for the Premium on Bonds Payable. Others might use the term valuation accounts.
Other examples of contra accounts include Allowance for Doubtful Accounts, Accumulated Depreciation, Discount on Notes Payable, Discount on Notes Receivable, LIFO Reserve, and certain investment accounts.
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