Question

A discount on bonds payable: a. Occurs when a company issues bonds with a contract rate less than the market rate. b. Occurs when a company issues bonds with a contract rate more than the market rate. c. Increases the Bond Payable account. d. Decreases the total bond interest expense.

Answer 1

a. Occurs when a company issues bonds with a contract rate less than the market rate

Step-by-step explanation:

Premium on bonds payable - occurs when a company issues bonds for an amount greater than their face or maturity amount. This causes the bonds to have a contract interest rate that is higher than the market interest rate for similar bonds.

Discount on bonds payable - occurs when a company issues bonds for an amount lesser than their face or maturity amount. This causes the bonds to have a contract interest rate that is lesser than the market interest rate for similar bonds.