Problem: Module $3$ Textbook Problem $7$

Learning Objective: $3-7$ Using the straight$-$line method show how bonds issued at a premium affect financial statements

The Square Foot Grill, Inc. Issued $$198,000$ of $10-$year, $8$ percent bonds on January $1,$ Year $1,$ at $102.$ Interest is payable in cash annually

on December $31.$ The straight$-$line method is used for amortization.

Required

a$.$ Use a financial statements model like the one shown below 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 premium and the cash payment, affects the

company's financial statements. Use $+$ for increase, $-$ for decrease, and if there is no effect, leave the cell blank.

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 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.

Use a financial statements model like the one shown below 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 premium and the cash payment, affects the company's financial

statements. Use $+$ for increase, $-$ for decrease, and if there is no effect, leave the cell blank. $($In the Cash Flow column, indicate whether the

item is an operating activity $($OA$),$ an investing activity $($IA$),$ or a financing activity $($FA$)$ and if there is no effect, leave the cell blank. Not all

cells will require entry.$)$

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