When a bond is issued at a discount,the discount has the effect of raising the interest expense on the bonds to the market rate of interest.

Question

Quizplus · Accepted Answer

When a bond is issued at a discount, the bond's interest rate is lower than the market rate of interest. This means that the interest expense recorded in the company's financial statements will be lower than it would be if the bond had been issued at par (face value). To adjust for this, the discount is amortized (decreased) over the life of the bond, which increases the interest expense each period and brings it up to the market rate of interest. Therefore, issuing a bond at a discount raises the interest expense on the bonds to the market rate of interest.

When a Bond Is Issued at a Discount,the Discount Has