Exercise 7-15 Straight-line amortization of a bond discount
Diaz Company issued $180,000 face
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. Use + for 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.
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