What type of account is unamortized bond discount?

An unamortized bond discount is reported within a contra liability account in the balance sheet of the issuing entity.

What type of account is unamortized bond premium?

An unamortized bond premium is a liability for issuers as they have not yet written off this interest expense, but will eventually come due. On financial statements, unamortized bond premium is recorded in a liability account called the Unamortized Bond Premium Account.

Is unamortized bond discount an asset?

How Unamortized Bond Discount Works. The discount refers to the difference in the cost to purchase a bond (its market price) and its par, or face, value. The issuing company can choose to expense the entire amount of the discount or can handle the discount as an asset to be amortized.

What type of account is a bond discount?

The account Discount on Bonds Payable (or Bond Discount or Unamortized Bond Discount) is a contra liability account since it will have a debit balance. Discount on Bonds Payable will always appear on the balance sheet with the account Bonds Payable.

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What is unamortized discount balance?

An unamortized bond discount refers to the balance of a bond discount that remains to be amortized by the issuing firm over the bond’s life until it matures. As the discount amortizes, it appears on the issuing firm’s income statement as an amortization or interest expense.

How do you account for unamortized discount?

When an unamortized bond discount is first recorded, there is a debit to cash in the amount of the cash received, a debit to the bond discount contra account in the amount of the discount, and a credit to the bonds payable account in the amount of the face value of the bonds issued.

How do you account for bond discount?

Accounting for Bond Amortization

If there was a discount on bonds payable, then the periodic entry is a debit to interest expense and a credit to discount on bonds payable; this has the effect of increasing the overall interest expense recorded by the issuer.

Where should the unamortized premium on a bond payable be reported on the balance sheet?

The premium or the discount on bonds payable that has not yet been amortized to interest expense will be reported immediately after the par value of the bonds in the liabilities section of the balance sheet.

What is the difference between amortized and unamortized?

The primary difference between amortized and unamortized debt is the mix of principal and interest that the borrower is required to pay back monthly. While borrowers pay back principal and interest on amortized debt in their monthly payment schedule, unamortized debt only requires them to pay on their interest.

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Is bond premium income or expense?

The amount of the premium is recorded in a separate bond-related liability account. Over the life of the bonds the premium amount will be systematically moved to the income statement as a reduction of Bond Interest Expense.

Is discounts on bonds payable a liability?

A contra liability account that reports the amount of unamortized discount associated with bonds that are outstanding. The discount on bonds payable originates when bonds are issued for less than the bond’s face or maturity amount.

How does the account discount on bonds payable or bond discount operate what type of account is it?

The amount of this discount is stored in a contra liability account, which is paired with and offsets the bonds payable account. The discount is amortized to interest expense over the remaining life of the bond, which means that the issuer recognizes an increased amount of interest expense over the life of the bond.

Why is discount on bonds payable a contra liability?

Discount on Bonds Payable is a contra account because it is a liability account with a debit amount. … Since a credit balance is the normal balance for a liability account, the account Premium on Bonds Payable cannot be referred to as a contra account. Here is where the term adjunct account is used.

What is bond discount amortization?

What is Amortization of Bond Discount? Amortization is a process carried out to reduce the cost base of a bond for each period to reflect the economic reality of the bonds approaching maturity. The amortization is done at par. It is easy to prepare, and it is essential in calculating tax returns.

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What is the amortization of discount on bonds payable?

When a discounted bond is sold, the amount of the bond’s discount must be amortized to interest expense over the life of the bond. When using the effective interest method, the debit amount in the discount on bonds payable is moved to the interest account.