Final answer:
The true statement regarding amortizing a bond discount is that it allocates a part of the total discount to each interest period, which increases the interest expense recorded each period. It does not increase cash flows, increase market value, decrease the Bonds Payable account, or decrease interest expense each period.
Step-by-step explanation:
When we discuss amortizing a bond discount, it refers to the process of gradually reducing the discount on a bond over its life, leading up to its maturity. Among the statements provided, the true statement is that amortizing a bond discount allocates a part of the total discount to each interest period. This process increases the amount of interest expense recorded each period because the bond was sold for less than its face value. As each payment is made, a portion of the discount is expensed, thereby increasing the carrying value of the bond on the balance sheet.
To clarify, increasing cash flows from the bond is not correct because cash flows are determined by the bond's coupon rate and are not affected by the process of amortization. Similarly, the market value of Bonds Payable is determined by current market interest rates and investor demand, not by the amortization process. The Bonds Payable account itself does not decrease; instead, the discount on bonds payable (a contra-liability account) decreases over time as the discount is amortized. Lastly, rather than decreasing, interest expense each period actually increases over the life of the bond as the discount is amortized.