Question

Taylor Company neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively

Answer 1

Taylor Company

The negligence to amortize the discount on outstanding ten-year bonds payable is the understatement of interest expense for each year. This means that the interest expense will be the same for each year instead of increasing by the amortized discount amount. The same applies to the bond carrying value, which will remain the same throughout the period.

Step-by-step explanation:

The discount on bonds payable is an additional interest expense, which is written off yearly over the bonds' maturity period through amortization. It increases the amount of the periodic interest payment by the amortized discount.