A bond discount is:
A)a result of the interest payments being less than the cost of borrowing.
B)essentially free money.
C)a result of the interest payments being more than the cost of borrowing.
D)reported on the income statement as a loss on the issuance of a bond.

Question

Quizplus · Accepted Answer

The bond sold at a discount because the stated rate is lower than the market rate of interest.The discount represents an extra cost of borrowing,over and above each interest payment.For accounting purposes,we match the extra borrowing cost to the periods in which interest is recorded.This amortization causes the Interest Expense to be more than the interest payment and,at the same time,causes Discount on Bonds Payable to decrease each period.As the Discount on Bonds Payable decreases,the carrying value of the liability increases until it reaches the face value of the bonds on the maturity date.

A Bond Discount Is