Asked by David Hornbek Jr. on May 13, 2024
Verified
If a company sells its 20-year bonds at a discount, the discount account should be reported on the balance sheet as a(n)
A) unearned liability
B) addition to the bonds payable
C) accrued expense
D) deduction from bonds payable
Discount Account
An account used in bookkeeping to record reductions in the list price of something, such as merchandise sold or loans issued.
Bonds Payable
Long-term debt instruments issued by a company to raise capital, with a promise to pay back the principal along with interest on specified dates.
Balance Sheet
A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, giving a snapshot of its financial condition.
- Highlight the distinctions among bonds transacted at a discount, at par, and at a premium value.
Verified Answer
BB
Barrianne BrownMay 19, 2024
Final Answer :
D
Explanation :
When a company sells its bonds at a discount, it means that the bonds are sold at a price lower than their face value. The discount account represents the difference between the face value of the bonds and the price at which they were sold. Therefore, it should be reported on the balance sheet as a deduction from bonds payable, which reduces the overall liability of the company.
Learning Objectives
- Highlight the distinctions among bonds transacted at a discount, at par, and at a premium value.