The Square Foot Grill, Incorporated issued $$177,000$ of $10-$year, $6$ 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:

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 premium and the cash payment, affects the company$$s financial statements. Record the recognition of interest expense as transaction $2$a and amortization of the discount and the cash payment as transaction $2$b$.$

Determine the carrying value $($face value less discount or plus premium$)$ of the bond liability as of December $31,$ Year $1.$

Determine the amount of interest expense reported on the Year $1$ income statement.

Determine the carrying value of the bond liability as of December $31,$ Year $2.$

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