Final answer:
The Discount on Bonds Payable is a contra liability account that represents the difference between the face value of bonds and their lower issue price, reflecting the company's additional cost of borrowing.
Step-by-step explanation:
When a company issues bonds at less than their face value, the difference between the face value and the issue price is recorded in an account known as 'Discount on Bonds Payable.' This account is essentially a contra liability account (option c) that reduces the value of bonds payable on the balance sheet, and is not an expense, liability, or contra asset account. Over time, this discount is amortized to interest expense, reflecting the additional cost of borrowing over the life of the bonds.
It represents the amount of discount the company has given to investors when selling the bonds. This discount is amortized over the life of the bond and reduces the amount of interest expense recorded each period.