Market conditions may force a company to issue its bonds at less than the face value of the bonds. The Discount on Bonds Payable account is used in this situation. This account:
A) is a contra liability account
B) is a liability account
C) is an expense account
D) is a contra asset account

Question

Quizplus · Accepted Answer

The Discount on Bonds Payable account is used to record the amount by which the face value of the bonds exceeds the amount received from the investors due to market conditions. This account is a contra liability account because it reduces the carrying amount of the Bonds Payable account, which is a liability account.

Market Conditions May Force a Company to Issue Its Bonds