The correct answer is b) a contra liability.
Explanation: The discount on bonds payable represents the difference between the face value of the bonds and the amount received when the bonds are issued. It is considered a contra liability because it reduces the carrying amount of the bonds payable on the balance sheet. When a company issues bonds at a discount, it essentially borrows less than the face value they will eventually have to pay back. Over time, this discount is amortized and increases the interest expense recognized on the income statement, but initially, it directly reduces the total liabilities reported. Thus, while it is associated with liabilities, it works to offset the bonds payable account, making it a contra liability.