A company issues a 5-year bond with a $7,500 discount. Using straight-line amortization, the company should:
A) debit discount on bonds payable for $1,500 per year.
B) credit discount on bonds payable for $1,500 per year.
C) debit interest payable for $1,500 per year.
D) credit interest payable for $1,500 per year.

Question

Quizplus · Accepted Answer

According to straight-line amortization, the discount on bonds payable is amortized equally over the life of the bond. In this case, the bond has a 5-year life and a $7,500 discount. Therefore, the discount should be amortized at a rate of $1,500 per year ($7,500/5 years). To reflect the decrease in the bond discount, the company should credit the discount on bonds payable account for $1,500 each year.

A Company Issues a 5-Year Bond with a $7,500 Discount