The Square Foot Grill, Incorporated issued $$174,000$ of $10-$year, $7$ percent bonds on January $1,$ Year $2,$ 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 to demonstrate how $(1)$ the January $1,$ Year $2,$ bond issue and $(2)$ the December $31,$ Year $2,$ recognition of interest expense, including the amortization of the premium and the cash payment, affects 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 $2.$

c$.$ Determine the amount of interest expense reported on the Year $2$ income statement.

d$.$ Determine the carrying value of the bond liability as of December $31,$ Year $3.$

e$.$ Determine the amount of interest expense reported on the Year $3$ income statement.

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Req A

Use a financial statements model to demonstrate how $(1)$ the January $1,$ Year $2,$ bond issue and $(2)$ the December $31,$ Year $2,$ recognition of interest expense, including the amortization of the premium and the cash payment, affects the company's financial statements.

Note: 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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$\backslash$table$[[$SQUARE FOOT GRILL, INCORPORATED$],[$Effect of Transactions on Financial Statements$],[\backslash$table$[[$Event$],[$Number$]],$Balance Sheet,Income Statement,$\backslash$table$[[$Statement of$],[$Cash Flows$]]],[$Assets$,=,$Liabilities,$+,\backslash$table$[[$Stockholders$\text{'}],[$Equity$]],$Revenue,$-,$Expense,$=,\backslash$table$[[$Net$],[$Income$]]],[1.,,=,,+,,,-,,=,-,],[2.,,,,,,,,,,,]]$