Exercise 10-14A (Algo) Straight-line amortization of a bond discount LO 10-4 Diaz Company issued bonds with a $87,000 face value on January 1, Year 1. The bonds had a 8 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 98. The straight-line method i 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 Revenue Income Statement - Expense = Net Income Statement of Cash Flows 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 carrvina value (face value less discount or plus premium) of the bond liability as of December 31. Year 2.
Exercise 10-14A (Algo) Straight-line amortization of a bond discount LO 10-4 Diaz Company issued bonds with a $87,000 face value on January 1, Year 1. The bonds had a 8 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 98. The straight-line method i 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 Revenue Income Statement - Expense = Net Income Statement of Cash Flows 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 carrvina value (face value less discount or plus premium) of the bond liability as of December 31. Year 2.
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 $87,000 face value on January 1, Year 1. The bonds had a 8 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 98. 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.
Effect of Transactions on Financial Statements
Balance Sheet
Assets = Liabilities +
Stockholders'
Equity
Revenue
Income Statement
- Expense = Net Income
Statement of Cash
Flows
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 carrvina value (face value less discount or plus premium) of the bond liability as of December 31. Year 2.
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