A company issues a 5-year bond with a $7,500 discount.Using straight-line amortization,the company should:
A)debit Discount on Bonds Payable for $1,500 per year.
B)credit Discount on Bonds Payable for $1,500 per year.
C)debit Interest Payable for $1,500 per year.
D)credit Interest Expense for $1,500 per year.

Question

Quizplus · Accepted Answer

Using straight-line amortization,the amount of the discount is evenly allocated over the bond's life.The Discount on Bonds Payable account is a contra-liability account and,as such,it normally has a debit balance.Each year,the company should credit Discount on Bonds Payable for $1,500 (or discount of $7,500 ÷ 5 years).

A Company Issues a 5-Year Bond with a $7,500 Discount