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Diaz Company issued bonds with a face value of $ 1 3 1 , 0 0 0 on January 1 , Year 1 . The

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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