Question

The Discount on bonds payable account ______.
A) is a miscellaneous revenue account
B) is expensed at the bond's maturity has a normal credit balance
C) is an expense account
D) is a contra account to Bonds payable

Answer 1

Answer:

D) is a contra account to Bonds payable

Explanation:

Discount on Bond payable arises as a result of a bond issued at a price below its face value, or maturity value. A Bond considered risky or a bond whose interest rate is below market value is usually issued at a discount.

A discount on Bond payable account is a contra account to Bond payable .It is used to decrease the bond value by accounting for the discount on the Bond. The account represents the difference between the maturity value of the Bond and the cash received. The discount amount is debited to this account. It is then amortized to bond interest expense account until the Bond matures.