Which of the following shows how the cash payment and recognition of interest expense affects the financial statements when a bond is issued at a discount?

Question

Quizplus · Accepted Answer

Option B shows that when a bond is issued at a discount, cash payments for interest expense are less than the amount of interest expense recorded on the income statement. As a result, interest expense will reduce net income on the income statement, and the discount will increase the carrying value of the bond on the balance sheet over time until it reaches par value at maturity. The cash flow statement will reflect the periodic cash payments for the interest expense. Option A does not show the increase in the carrying value of the bond, Option C shows interest expense and cash payments being equal, and Option D shows a decrease in the carrying value of the bond instead of an increase.

Which of the Following Shows How the Cash Payment and Recognition