Diaz Company issued bonds with a face value of $$131,000$ on January $1,$ Year $1.$ The bonds had a stated interest rate of $8$ percent 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 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.

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

Req 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. $($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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