Which of the following most accurately represents what happens when a bond is issued at a...

Question:

Which of the following most accurately represents what happens when a bond is issued at a discount?

a. The company effectively pays a higher rate of interest than what is stated on the bond.

b. The issuing company suffers a loss on the transaction.

c. The amount of the interest payment is more than the Interest Expense recorded with each payment.

d. The buyer of the bond pays less than what the bond is worth.

e. Both a. and d. are correct.

Long-Term Liabilities

Long-term liabilities are those debts and obligations of the corporation with a maturity date of more than one year. Examples of the long-term liabilities are bonds, long-term notes payable, mortgage payable, unearned revenue which will be fulfilled in more than one year, etc.

Answer and Explanation:

The correct answer is e. Both a. and d. are correct.

Bonds issued at a discount will receive less from the bond investor and is also coupled with higher interest to cover the shortfall in the difference between the bond's face value and the issue price.


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Accounting for Long-Term Liabilities

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 6
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