Question

# Diaz Company issued bonds with a \$98,000 face value on January 1, Year 1. The bonds...

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.

 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

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