For which of the following types of bonds is interest expense recognized each year even though no interest is paid?

A) debenture bonds
B) zero-coupon bonds
C) serial bonds
D) mortgage bonds

Zero-coupon bonds are issued at a discount and do not make periodic interest payments. Instead, the interest is added to the bond's face value and paid at maturity. However, because the interest is accruing over the life of the bond, the issuer must recognize an imputed interest expense each year, based on the prevailing market interest rate. This is known as the bond's imputed interest, and it is recognized as an expense on the issuer's income statement, even though no cash payment is made.