Diaz Company issued $132,000 face value of bonds on January 1, Year 1. The bonds had a 5 percent stated rate of interest and a ten- 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 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 discount and the cash payment, affect 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 1. c. Determine the amount of interest expense reported on the Year 1 income statement. d. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 2. e. Determine the amount of interest expense reported on the Year 2 income statement.
Diaz Company issued $132,000 face value of bonds on January 1, Year 1. The bonds had a 5 percent stated rate of interest and a ten- 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 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 discount and the cash payment, affect 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 1. c. Determine the amount of interest expense reported on the Year 1 income statement. d. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 2. e. Determine the amount of interest expense reported on the Year 2 income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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4
Transcribed Image Text:Diaz Company issued $132,000 face value of bonds on January 1, Year 1. The bonds had a 5 percent stated rate of interest and a ten-
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 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 discount and the cash payment, affect 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 1.
c. Determine the amount of interest expense reported on the Year 1 income statement.
d. Determine the carrying value (face value less discount or plus premium) 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.
Req B to E
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 discount and the cash payment, affect the company's financial
statements. (Use + for increase, - for decrease and if the element is not affected, 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.)
Req A
Event
No.
1.
2a.
2b.
DIAZ COMPANY
Effect of Transactions on Financial Statements
Income Statement
Balance Sheet
Assets = Liabilities
Stockholders'
Equity
Revenues
LIL
Expenses
Net
Income
Statement of
Cash Flow
Show less A
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