Multiple Choice
The balance in Discount on Bonds Payable is best described as:
11. Long Term Liabilities
Discount on Bonds
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In 2014, ABC Company issued $100,000, 10%, bonds while the market interest rate was 12%. The bonds mature in the current year. The amount of principal that ABC Company will repay in the current year is equal to:
A
$0
B
An amount greater than $0 but less than $100,000
C
$100,000
D
Some amount greater than $100,000
Verified step by step guidance1
Understand that bonds are a form of debt where the issuer promises to pay back the principal amount at maturity, along with periodic interest payments.
Identify the principal amount of the bonds issued by ABC Company, which is $100,000.
Recognize that the market interest rate at the time of issuance does not affect the principal repayment amount. It only affects the bond's selling price and interest expense.
Note that the bonds are maturing in the current year, which means the principal amount is due to be repaid.
Conclude that the principal amount to be repaid at maturity is the face value of the bonds, which is $100,000.
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