Question

Sassy's trial balance shows $200,000 face value of bonds with a discount balance of $2,000. The bonds mature in 10 years. How will the bonds be presented on the balance sheet?

A. Bonds payable $ 198, 000 (net of $ 2, 000 discount) will be listed as a long-term liability.
B. Bonds payable $ 200, 000 will be listed as a long-term liability. A $ 2, 000 discount on bonds payable will be listed as a contra current liability.
C. Bonds payable $ 200, 000 will be listed as a long-term liability.
D. Bonds payable $ 200, 000 will be listed as a long-term liability.

Answer 1

On Sassy's balance sheet, the $200,000 face value of bonds with a $2,000 discount will be presented as Bonds Payable at $198,000 (net of discount) as a long-term liability. The option (A) is correct.

Step-by-step explanation:

Sassy's trial balance shows a $200,000 face value of bonds with a discount balance of $2,000. When it comes to presenting these bonds on the balance sheet, they would be presented as Bonds Payable with the amount of $198,000, which is net of the $2,000 discount, reflecting the actual liability Sassy will need to pay back at maturity. This amount will be listed as a long-term liability on the balance sheet.

As bonds are financial instruments that represent debt, the discount on the bonds payable represents the difference between the face value of the bonds and what they were sold for. Over the life of the bond, this discount is amortized and the value of the bonds on the balance sheet gradually approaches their face value as maturity approaches. Therefore, option (A) is correct.