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

Diaz Company issued bonds with a $$138,000$ face value on January $1,$ Year $1.$ The bonds had a $6$ 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 $96.$ 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.

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Req B to E

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.

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$\backslash$table$[[$b$.$ Carrying value$],[$c$.$ Interest expense$],[$d$.$ Carrying value$],[$e$.$ Interest expense$]]$