Fundamental Accounting Principles Study Set 5
Quiz 14: Long-Term Liabilities
A Discount on Bonds Payable Occurs When a Company Issues
A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.
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The carrying amount (book value) of a bond at the time when it is issued is always equal to its par value.
The carrying amount (book value) of a bond payable is the par value of the bonds plus the discount.
On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The total interest expense on the bond over its eight-year life is $400,000.
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