Smith Transportation has bonds payable reported in its balance sheet with a due date of December 31, 2025 and a stated interest rate of 6%. You notice, however, that there are two accounts related to those bonds: Bonds payable of $10 million, and an account called premium on bonds payable with a balance of $200,000.

Required:

1. Briefly explain what the premium account represents.

2. How much do they have to pay back on December 31, 2025?

3. How much does Smith pay for interest on these bonds each year?

4. Is the interest expense reported equal to the amount of cash paid each year? If not, explain why not.