Diaz Company issued $93,000 face value of bonds on January 1, 2018. The bonds ha

Question

Diaz Company issued $93,000 face value of bonds on January 1, 2018. The bonds had a 5 percent stated rate of interest and a ten- year term. Interest is paid in cash annually, beginning December 31, 2018. 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, 2018, bond issue and (2) the December 31, 2018, recognition of interest expense, including the amortization of the discount and the cash payment, affect the company's financial statements. Usefor increase, - for decrease, and NA for not affected b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018 c. Determine the amount of interest expense reported on the 2018 income statement. d. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2019 e. Determine the amount of interest expense reported on the 2019 income statement. Complete this question by entering your answers in the tabs below Req A Req B to E Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2018, bond issue and (2) the December 31, 2018, 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 NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), or a financing activity (FA) and NA for not affected.) Show lessA DIAZ COMPANY Effect of Transactions on Financial Statements Balance Sheet Income Statement Event Net Income Statement of Cash Flow AssetsLiabilities+Stockholders RevenuesExpenses Equity 2b

Explanation / Answer

Answer a DIAZ COMPANY Effects of Transactions on Financial statements Event No. Balance Sheet Income Statement Assets = Liabilities + Stockholders Equity Revenues - Expenses = Net Income Statement of Cash flows $1.00 $93,000.00 = $93,000.00 + - = $90,210.00 FA 2a -$4,650.00 = + - $4,650.00 = -$4,650.00 -$4,650.00 OA 2b -$279.00 = + - $279.00 = -$279.00 $0.00 NA = + - = Answer b Carrying value of the bond liability as of Dec.31,2018 Bond Payable $93,000.00 Less : Discount on Bonds Payable [$2790 - $279] $2,511.00 Carrying value of the bond liability as of Dec.31,2018 $90,489.00 Answer c Amount of interest expense reported on the 2018 income statement Interest Paid in Cash $4,650.00 Add : Discount on Bonds Payable amortised $279.00 Interest Expense reported in 2018 $4,929.00 Answer d Carrying value of the bond liability as of Dec.31,2019 Bond Payable $93,000.00 Less : Discount on Bonds Payable [$2790 - $279 - $279] $2,232.00 Carrying value of the bond liability as of Dec.31,2019 $90,768.00 Answer e Amount of interest expense reported on the 2019 income statement Interest Paid in Cash $4,650.00 Add : Discount on Bonds Payable amortised $279.00 Interest Expense reported in 2019 $4,929.00

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