How does a company account for the difference between interest expense and the cash payment of interest when bonds are issued at less than their face value?
A) The difference is accounted for using Amortization of Bond Premium.
B) The difference is accounted for using Amortization of Bond Discount.
C) In this situation the cash payment of interest will exceed interest expense.
D) The difference is accounted for using Bonds Payable.

Question

Quizplus · Accepted Answer

When bonds are issued at less than their face value, it is called a Bond Discount. The company must account for the difference between the interest expense (which is based on the face value of the bond) and the cash payment of interest (which is based on the discounted price at which the bond was sold). This difference is accounted for using Amortization of Bond Discount. Therefore, Choice Letter B is the best answer.

How Does a Company Account for the Difference Between Interest