Ben Bradley started Bradley Company on January 1 Year 1. The company experienced the following events during its first year of operation: 1. Earned $2,600 of cash revenue for performing services 2. Borrowed $4100 cash from the bank 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on August 1 Year 1, had a one-year term and a 12 percent annual interest rate. Required a. What is the amount of interest expense in Year 12 Interest expense b. What amount of cash was paid for interest in Year 1? Interest payment c. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (l) or decreases (D) each element of the financial statements. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA). Investing activities (IA) or financing activities (FA). Columns for events that have no effect on any of the elements should be left blank. The first transaction has been recorded as an example. (Note: Not all cells will require an input.) Assets - BRADLEY COMPANY Horizontal Financial Statement Model for Year 1 Balance Sheet Income Statement - Statement of Cash Liabilities Stockholders' Equity Revenue - Expense - Income Notes Interest Common Retained Payable Payable S tock Earnings Net Flows Event No. Cash Ben Bradley started Bradley Company on January 1, Year 1. The company experienced the following events during its first year of operation: 1. Earned $2,600 of cash revenue for performing services 2. Borrowed $4100 cash from the bank. 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on August 1 Year 1, had a one-year term and a 12 percent annual interest rate. Required a. What is the amount of interest expense in Year 1? Interest expense b. What amount of cash was paid for interest in Year 1? Interest payment c. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (l) or decreases (D) each element of the financial statements. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (A) or financing activities (FA). Columns for events that have no effect on any of the elements should be left blank. The first transaction has been recorded as an example. (Note: Not all cells will require an input.) BRADLEY COMPANY Horizontal Financial Statement Model for Year 1 Balance Sheet Income Statement labilities Stockholders' Equity Revenue - Expense - Income Interest Common Retained Payable Payable Stock Earnings Net Statement of Cash flows Assets Event No Cash
