Diaz Company issued bonds with a face value of $$84,000$ on January $1,$ Year $1.$ The bonds had a stated interest rate of $7$ percent and a $10-$year 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

a$.$ Use a financial statements model 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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Use a financial statements model 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. $($Use $+$ for increase or $-$ for 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.$)$

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$\backslash$table$[[$Effect of Transactions on Financial Statements$],[,$Balance Sheet,Income Statement,$\backslash$table$[[$Statement of Cash$],[$Flows$]]],[$Event No$.,$Assets,$=,$Liabilities,$+,\backslash$table$[[$Stockholders$\text{'}],[$Equity$]],$Revenue,$-,$Expenses,$=,$Net Income$],[1.,,=,,+,,,-,,=,,2],[2.,,=,,+,,,-,,=,,5]]$