The Square Foot Grill, Inc. issued $187,000 of 10-year, 5percent bonds on January 1, 2018, at 102. interest is payable incash annually on December 31. The straight-line method is used foramortization.
Required
Use a financial statements model like the one shown below todemonstrate how (1) the January 1, 2018, bond issue and (2) theDecember 31, 2018, recognition of interest expense, including theamortization of the premium and the cash payment, affects thecompany’s financial statements. Use + for increase, ? for decrease,and if there is no effect, leave the cell blank.
Determine the carrying value (face value less discount or pluspremium) of the bond liability as of December 31, 2018.
Determine the amount of interest expense reported on the 2018income statement.
Determine the carrying value of the bond liability as ofDecember 31, 2019.
Determine the amount of interest expense reported on the 2019income statement.
