Answer choice: b. debit Interest Expense, credit Discount on Bonds Payable.
Which of the following is the entry to amortize a discount on bonds?
Which of the following is the entry to amortize a discount on bonds? The entry to amortize a discount on bonds payable debits Interest Expense and credits Discount on Bonds Payable (answer C).
How do you record discounts on bonds payable?
Discount on Bonds Payable will always appear on the balance sheet with the account Bonds Payable. In other words, if the bond is a long-term liability, both Bonds Payable and Discount on Bonds Payable will be reported on the balance sheet as long-term liabilities.
How do you record bond amortization?
The easiest way to account for an amortized bond is to use the straight-line method of amortization. Under this method of accounting, the bond discount that is amortized each year is equal over the life of the bond. Companies may also issue amortized bonds and use the effective-interest method.
What happens when you amortize a bond discount?
Discounted bonds’ amortization always leads to an effective interest expense that is higher than the payment of the bond interest coupon for each period. If a bond is sold at a discount, it means that the market interest rate is above the coupon rate.
What is amortization of discount?
The systematic allocation of the discount on bonds payable (reported as a debit in a contra-liability account) to Bond Interest Expense over the life of the bonds.
What does it mean to amortize a discount?
With regards to bonds payable, the term amortize means to systematically allocate the discount on bonds payable, the premium on bonds payable, and the bond issue costs to Interest Expense over the remaining life of the bonds. (Bonds are likely to mature in 10 years or more.)