Unamortized bond discount is the portion of a discount on bonds payable that has not yet been written off to interest expense at a given date. It is the balance remaining in the discount account, and it is deducted from the face value of the bonds to give their carrying amount. The main entry explains why the discount arises and how it is first recorded.
How the balance changes
When bonds are issued below face value, the full discount is recorded at once. Each interest period, part of it is transferred to interest expense through amortization of bond discount, using either the straight-line method or the effective interest rate method. What is left is the unamortized discount, which shrinks to zero by maturity, when the carrying amount equals the face value to be repaid.
For example, if $1,000,000 of bonds were issued for $920,000, the initial discount is $80,000. After $30,000 has been amortized, the unamortized bond discount is $50,000 and the bonds are carried at $950,000.
The figure matters when bonds are repaid early. On a redemption of bonds payable before maturity, the company removes both the face value and the remaining unamortized discount, and records a gain or loss for the difference between the carrying amount and the price paid. The general term for the whole amount at issue is bond discount.