When the contract rate is higher than the market rate, a company records a debit cash and discount on bonds payable, credit bonds payable journal entry for the issuance of bonds.
The bonds will be sold for less than their face value if the market rate is higher than the contract rate. Over the bond's life, interest costs go up when the discount is amortized. On January, the bonds will be sold at a discount if the market rate at the time of sale is higher than the stated rate. Bonds will be sold at a premium if the market rate is lower than the stated rate when they are sold.
The stated interest rate on a bond is lower than the actual interest rate on the bond when it is sold at a discount. In contrast, the stated rate of interest is higher than the actual rate of interest when a bond is sold at a premium.12.
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