Problem: Module $3$ Textbook Problem $5$

Learning Objective: $3-6$ Using the straight$-$line method show how bonds issued at a discount affect financial statements

Diaz Company issued $$113,000$ face value of bonds on January $1,$ Year $1.$ The bonds had a $9$ percent stated rate of interest and a tenyear term. Interest is paid in cash annually, beginning December $31,$ Year $1.$ The bonds were issued at $98.$ The straight$-$line method is used for amortization.

Required

Q$.$ Use a 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 $1,$ 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.

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$.,,],[$c$.,$Carrying value,$],[$d$.,$Carrying value,$],[$e$,$interest expense,$]]$