Question

How can there be interest expense each period for noninterest-bearingbonds if there are no interest payments?

Answer 1

Non interest bearing bonds are like zero coupon bonds.

The zero coupon bond is issued at discount value and redeemed at par value , the difference between issue price & redemption price is return earned on that bond.

There is no annual interest expenses like coupon bonds but however calculation of interest expense for non interest bearing bonds in the form of imputed interest basis and the IRS uses imputed interest as a tool to collect tax from non interest bearing securities.