When bonds are issued at a price below face value, the Discount on Bonds Payable account is debited for the difference between the issue price and the face value.

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When bonds are issued at a price below face value, the Discount on Bonds Payable account is debited for the difference between the issue price and the face value. This method of accounting for bonds payable is known as the discount method. The discount is amortized over the life of the bond and is shown as a deduction from the face value of the bond on the balance sheet.

When Bonds Are Issued at a Price Below Face Value