210. Over the term of the bonds, the balance in the Discount on Bonds Payable account will A) fluctuate up and down if the market is volatile. B) decrease. C) increase. D) be unaffected until the bonds mature.

Question

Quizplus · Accepted Answer

When a bond is issued at a discount, the Discount on Bonds Payable account is created on the balance sheet to record the difference between the face value of the bond and the amount received from investors. The balance in the account is gradually amortized over the life of the bond, reducing the discount and increasing the carrying value of the bond. Therefore, the balance in the Discount on Bonds Payable account will decrease over the term of the bonds, until it reaches zero when the bonds mature. The fluctuation of the market does not affect the balance in this account as it is based on the terms of the bond and the effective interest rate of the bond.