Bill Darby started Darby Company on January 1, Year 1. The company experienced the following events during its first year of operation:

1. Earned $1,700 of cash revenue. 2. Borrowed $2,900 cash from the bank. 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, Year 1, had a one-year term and an 8 percent annual interest rate. Required a. What is the amount of interest expense in Year 1? b. What amount of cash was paid for interest in Year 1? 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 (1) or decreases (D), or if there is no effect, leave the cell blank. In the Cash Flows column, designate the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction has been recorded as an example. Complete this question by entering your answers in the tabs below. Req A and B Reg C What is the amount of interest expense and the cash paid for interest in Year 1? (Do not round intermediate calculations and round your final answer to nearest whole dollar amount.) a. Interest expense b. Amount of cash DARBY COMPANY Horizontal Statements Model for Year 1 Balance Sheet Income Statement Assets Event No. Liabilities + Statement of Cash Flows Revenue Expenses Cash Net Income Notes Payable II Interest Payable Stockholders' Equity Common Retained + Stock Earnings 1 + 1. 1 = + + + 1 = 1 1 2. + + ++ + + 3