Exercise $10-14$A $($Algo$)$ Straight$-$line amortization of a bond discount LO $10-4$

Diaz Company issued bonds with a $\backslash (\backslash$$ $106,000\backslash )$ face value on January $1,$ Year $1.$ The bonds had a $8$ percent stated rate of interest and a $10-$year term. Interest is paid in cash annually, beginning December $31,$ Year $1.$ The bonds were issued at $99.$ The straight$-$line method is used for amortization.

Required

a$.$ Use a horizontal statements model like the one shown below to demonstrate how $(1)$ the January $1,$ Year $1,$ bond issue and $(2)$ the December $31,$ Year $1,$ recognition of interest expense, including the amortization of the discount and the cash payment, affect the company's financial statements.

b$.$ Determine the carrying value $($face value less discount or plus premium$)$ of the bond liability as of December $31,$ Year $1.$

c$.$ Determine the amount of interest expense reported on the Year $1$ income statement.

d$.$ Determine the carrying value $($face value less discount or plus premium$)$ of the bond liability as of December $31,$ Year $2.$

e$.$ Determine the amount of interest expense reported on the Year $2$ income statement.

Complete this question by entering your answers in the tabs below.

Req B to E

Use a horizontal statements model like the one shown below to demonstrate how $(1)$ the January $1,$ Year $1,$ bond issue and $(2)$ the Deceml expense, including the amortization of the discount and the cash payment, affect the company's financial statements.

Note: Explain how each event would affect the financial statements by selecting Increase, Decrease, or Both for increase and decrease.In $\backslash ($ t $\backslash )$ use the initials OA to designate operating activity, IA for investing activity, and FA for financing activity. Not all cells require input. Complete this question by entering your answers in the tabs below.

Req A

Req $\backslash ($ B $\backslash )$ to $\backslash ($ E $\backslash )$

b$.$ Determine the carrying value $($face value less discount or plus premium$)$ of the bond liability as of December $31,$ Year $1.$

c$.$ Determine the amount of interest expense reported on the Year $1$ income statement.

d$.$ Determine the carrying value $($face value less discount or plus premium$)$ of the bond liability as of December $31,$ Year $2.$

e$.$ Determine the amount of interest expense reported on the Year $2$ income statement.