Exercise 10-14A Straight-line amortization of a bond discount LO 10-4

Diaz Company issued bonds with a $90,000 face value on January 1, Year 1. The bonds had a 6 percent stated rate of interest 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 like the one shown next 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 companys 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. Columns for events that have no effect on any of the elements should be left blank.) (Note: Not all cells will require an input.)

Effect of Transactions on Financial Statements Balance Sheet Income Statement Stockholders' Liabilities Revenue Expense Net Income Equity Statement of Cash Flows Event No. Assets 1. HII ++ 2 11