Question

A discount on bonds should be reported in the balance sheet: Multiple Choice At the present value of the future addition to bond interest expense due to the discount. As a reduction in bond issue costs. As a reduction of the face amount of the bond. As a deferred credit.

Answer 1

Answer:

C. As a reduction of the face amount of the bond

Explanation:

The bond will be recorded at a reduction of face value of the bond this is because an unamortized bond discount is the difference between the face value of a bond, its value at maturity and the proceeds from the sale of the bond by the issuing company, less the portion that has already been amortized (written off in gradual increments) on the profit and loss statement.

A bond discount to face value occurs when the present rate of interest related to a bond is less than the market rate of interest of problems with similar credit risk.

For instance, If on the date a bond is sold, the listed bond's coupon or rate of interest is below current market rates; investors will only comply to purchase the bond at a "discount" from its face value.

Because bond prices and interest rates are inversely related, as interest rates move after bond issuance, bond's are going to be said to be trading at a premium or a reduction to their par or maturity values. Because the bond's coupon or rate of interest is now below market rates, and investors can recover deals (and better yields) with new issues, those selling the bond need to , in effect, mark it right down to make it more appealing to buyers. therefore the bond are going to be priced at a reduction to its face value .