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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What best describes the discount on bonds payable account?

  1. A liability
  2. An asset
  3. A contra liability
  4. An expense

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To choose:

The correct Statement about discount on bonds payable.

Explanation

Explanation for correct answer:

Discount on bonds payable is reduced from the Bonds Payable par value amount while presenting it on the Liabilities section of the balance sheet. So it is contra liability account.

Hence, the correct option is c.

Explanation for incorrect answers:

a...

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