Scott Inc. neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively?

Question

Quizplus · Accepted Answer

Failure to amortize the discount on bonds payable results in understating interest expense because the discount represents additional interest cost that should be recognized over the life of the bond. Additionally, the carrying value of the bond is understated because the discount is not being reduced over time, keeping the bond liability lower than it should be.

Scott Inc Neglected to Amortize the Discount on Outstanding Ten-Year Bonds