Diaz Company issued $80,000 face value of bonds on January 1,2018. The bonds had a 6 percent stated rate of interest and aten-year term. Interest is paid in cash annually, beginningDecember 31, 2018. The bonds were issued at 98. The straight-linemethod is used for amortization. Required a. Use a financialstatements 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 thediscount and the cash payment, affect the company’s financialstatements. Use + for increase, ? for decrease, and NA for notaffected. b. Determine the carrying value (face value less discountor plus premium) of the bond liability as of December 31, 2018. c.Determine the amount of interest expense reported on the 2018income statement. d. Determine the carrying value (face value lessdiscount or plus premium) of the bond liability as of December 31,2019. e. Determine the amount of interest expense reported on the2019 income statement.
