The discount on a bonds payable becomes:
A)additional interest expense in only the year the bonds are issued.
B)additional interest expense over the life of the bonds.
C)a reduction in interest expense in only the year the bonds mature.
D)a reduction in interest expense over the life of the bonds.

Question

Quizplus · Accepted Answer

If a bond promises to pay interest at a stated rate that is less than the market rate,no one will be willing to acquire the bond unless the company discounts it.The discount reduces the initial bond price for investors without changing the stated interest payments and the face value paid to them at maturity.In effect,a discount increases the return that bondholders earn on their initial investment.Or,in other words,the discount results in additional interest expense over the life of the bonds.

The Discount on a Bonds Payable Becomes