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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 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.

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.2AP
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24 S' ook nt 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.
Transcribed Image Text:24 S' ook nt 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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