A discount on bonds payable:
A) Occurs when a corporation issues bonds with a contract rate less than the market rate.
B) Occurs when a corporation issues bonds with a contract rate higher than the market rate.
C) Is recorded as a contra equity account.
D) Only occurs when unsecured bonds are issued.
E) Never happens in the real world.

Question

Quizplus · Accepted Answer

A discount on bonds payable occurs when a corporation issues bonds with a contract rate less than the market rate. This means that the bond will be sold for less than its face value, which results in a discount. The discount is recorded as a contra liability account, which reduces the carrying cost of the bond over time.

A Discount on Bonds Payable