Question

Diaz Company issued bonds with a $98,000 face value on January 1, Year 1. The bonds had a 6 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 97. The straight-line method is used for amortization.

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 carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 2.
e. Determine the amount of interest expense reported on the Year 2 income statement.

Answer 1

amount of discount= 98000*(1-0.97) = 2940
(b) Carrying Value year 1
Bond Payable			98000
less: Discount (2940-294)			2646
Carrying Value			95354
c) Interest expenses year 1
Interest (98000*6%)			5880
amortization of bond discount 2940/10			294
interest exp			6174
d) Carrying value year 2
carrying value on year 1			95354
add: amortization of bond			294
			95648
e) Interest expenses year 2
interest (98000*6%)			5880
amortization of bond			294
interest exp			6174