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Diaz Company issued bonds with a $127,000 face value on January 1, Year 1. The bonds had a 5 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 99. The straight-line method is used for amortization.

Diaz Company issued bonds with a $127,000 face value on January 1, Year 1. The bonds had a 5 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 99. The straight-line method is used for amortization.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 10-14A (Algo) Straight-line amortization of a bond discount LO 10-4 Diaz Company issued bonds with a $127,000 face value on January 1, Year 1. The bonds had a 5 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 99. 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 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. Event Number 1. 2 Assets Effect of Transactions on Financial Statements Balance Sheet Liabilities + Stockholders Equity < Prev Revenue 5 of 10 ⠀⠀ Income Statement -Expense Net Income Check my work Next > Statement of Cash Flows - FA OA
Transcribed Image Text:Exercise 10-14A (Algo) Straight-line amortization of a bond discount LO 10-4 Diaz Company issued bonds with a $127,000 face value on January 1, Year 1. The bonds had a 5 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 99. 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 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. Event Number 1. 2 Assets Effect of Transactions on Financial Statements Balance Sheet Liabilities + Stockholders Equity < Prev Revenue 5 of 10 ⠀⠀ Income Statement -Expense Net Income Check my work Next > Statement of Cash Flows - FA OA
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