Answer:
The amortization of discount on bonds payable increases the interest expense and decreases the bonds payable balance. Discount on bonds payable is a contra liability account with a debit balance that decreases the credit balance of the bonds payable account.
Explanation:
E.g. $100,000 in bonds are issued, annual coupons with a 4% interest rate, matures in 5 years and sells for $90,000
the journal entry to record the issuance
Dr Cash 90,000
Dr Discount on bonds payable 10,000
Cr Bonds payable 100,000
The journal entry to record first coupon payment using straight line method of amortization
Dr Interest expense 6,000
Cr Cash 4,000
Cr Discount on bonds payable 2,000
The bonds payable account balance after the first coupon payment = $92,000
