Diaz Company issued bonds with a face value of $$117,000$ on January $1,$ Year $1.$ The bonds had a stated interest rate of $5$ percent and a $10-$year term. Interest is paid in cash annually, beginning December $31,$ Year $1.$ The bonds were issued at $97.$ 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.