A partial amortization schedule for a five-year note payable that Mercury Co. issued on January 1, Year 1, is shown next:

Required
a. What rate of interest is Mercury Co. paying on the note?
b. Using a financial statements model like the one shown next, record the appropriate amounts for the following two events:
(1) January 1, Year 1, issue of the note payable
(2) December 31, Year 2, payment on the note payable

c. If the company earned $75,000 cash revenue and paid $32,000 in cash expenses in addition to the interest in Year 1, what is the amount of each of the following?
(1) Net income for Year 1
(2) Cash flow from operating activities for Year 1
(3) Cash flow from financing activities for Year 1
d. What is the amount of interest expense on this loan for Year 3?

Transcribed Image Text:

Applied to Interest Applied to Principal Accounting Period Year 1 Year 2 Principal Balance January 1 Cash Payment $13,858 13,858 $10,858 11,401 $3,000 2,457 $60,000 49,142 Balance Sheet Income Statement Statement Event No. Assets = Llab. + Stk. Equlty Rev. - Exp. of Cash Flows = Net Inc. 1.