Question

A discount on bonds payable: Multiple Choice Occurs when a company issues bonds with a contract rate less than the market rate. Occurs when a company issues bonds with a contract rate more than the market rate. Increases the Bond Payable account. Decreases the total bond interest expense. Is not allowed in many states to protect creditors.

Answer 1

Occurs when a company issues bonds with a contract rate less than the market rate.

Step-by-step explanation:

As we know that

The premium on bond payable arise when the company issued the amount more than the face value amount this result in high interest rate as compared with the market interest rate

While on the other hand, the discount on note payable arise when the issued amount is less than the face value that results in low interest rate as compared with the market interest rate

Hence, the first option is correct