When debentures are issued at a discount:
A) The discount represents the cost of attracting the funds and should be recognised as an expense.
B) No further entries are required because the discount is calculated prior to receipt of the funds and therefore will not be recorded.
C) A decision needs to be made as to whether to use the straight-line or effective-interest rate methods if the discount is to be amortised.
D) The discount amount can be used to offset any gains shown when debentures have been issued at a premium.
E) None of the given answers.

Question

Quizplus · Accepted Answer

When debentures are issued at a discount, the discount represents the difference between the face amount of the debenture and the amount actually received. This discount should be amortized over the term of the debenture using either the straight-line method or the effective-interest rate method. Therefore, a decision needs to be made as to which method to use.

When Debentures Are Issued at a Discount