Exercise $10-17$A $($Static$)$ Straight$-$line amortization of a bond premium LO $10-5$

Stuart Company issued bonds with a $$150,000$ face value on January $1,$ Year $1.$ The bonds had a $6$ percent stated rate of interest and a five$-$year term. Interest is paid in cash annually, beginning December $31,$ Year $1.$ The bonds were issued at $103.$ The straight$-$line method is used for amortization.

Required

a$.$ Use a horizontal financial statements model like the one shown below to demonstrate how $(1)$ the Janualy $1,$ Year $1,$ bond issue and $(2)$ the December $31,$ Year $1,$ recognition of interest expense, including the amortization of the premium ang 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 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 A

Use a horizontal financial statements model like the one shown below to demonstrate how $(1)$ the January $1,$ Year $1,$ bond issue and $(2)$ the December $31,$ Year $1,$ recog of interest expense, including the amortization of the premium 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 the Statement of Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, and FA for financing activity. Not all cells require input.