Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 29

For the following questions, circle the best response.

The Discount on Short-Term Debt account

a. is a contra liability account.

b. reduces the total amount of liabilities reported on the balance sheet.

c. is often netted against the liability account to which it relates for financial reporting purposes.

d. is amortized to interest expense over the life of the liability to which it relates.

e. all of the above.

Step 1 of 6

(a)

Discount on Short-Term Debt is a contra liability account. Normally, a liability account has a credit balance, but when a liability account has a debit or zero balance, it is referred to as a contra liability account. A common type of contra liability account is Discount on Short-Term Debt. As the interest expense on the debt is incurred, the Discount on Short-Term Debt will be amortized.