232. 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

The balance in the Discount on Bonds Payable account represents the difference between the face value of the bonds and the lower amount at which they were sold. As the bond approaches maturity, the discount on bonds payable account will decrease as it is amortized over the life of the bond. This is done using the effective interest rate method which reduces the balance of discount on bonds payable account with each interest payment. Therefore, the correct answer is B, it will decrease throughout the term of the bond.