Question

How would the Amortization of a bond discount affect each of the following?

Answer 1

Answer:

B.

increase increase

Explanation:

The correct double entry for amortization of discount is a credit to the bonds payable account and debit to interest expense as the amortization increases both bonds payable and interest expense.

The point is that when a bond is issued at a discount, its issue price is lower than par value, hence, the amortization of discount adds to the issue price over time in order to make the carrying value the same as par value at redemption.

In the same vein,the interest expense calculated using a discounted value is lower and the amortization adds to it in order to ensure the interest expense is the same cash coupon paid