Q6RQ - Horngren'S Financial And Managerial Accounting

Question

When does a discount on bonds payable occur?

Step-by-Step Solution

Answer

Discount on the bonds payable when issued less than their face value.

Step 1: Definition of stated interest rate

The stated interest rate is the interest rate provided by the issuer of the bonds to its investors.

Step 2: Occurrence of bonds payable discount

The discount on the bonds payable occurs when the investor wants a more effective interest rate because the investor is not satisfied with the fixed interest rate. To fulfill the need for a high return discount on the bonds payable occurs.