How should underwriting fees of 1.5% on issued bonds be treated in the accounting records?

Underwriting fees associated with issued bonds should be amortized over the life of the bonds. This treatment aligns with the accounting principle of matching expenses with the revenue they help generate. Since the underwriting fees are directly related to the issuance of the bonds, spreading the cost over the life of the bonds accurately reflects their economic reality.

When bonds are issued, the underwriting fees are considered a part of the total cost of borrowing and should not be fully expensed in the period of issuance. Instead, they contribute to the overall cost of the bond, which is why they are amortized. This means that the fees will be systematically recognized as an expense on the income statement over each accounting period until the maturity of the bonds.

This approach is consistent with the treatment of other related costs, like issuance costs, which are also typically amortized. It provides a clearer financial picture when reviewing the performance of the bond over time, ensuring that the costs are recognized in the same periods as the interest revenue generated from the bond proceeds.