Notes Payable and Interest

On July 1, 2014, Jo's Flower Shop borrowed $25,000 from the bank. Jo signed a ten-month, 8% promissory note for the entire amount. Jo's uses a calendar year-end.

Required:

1. Identify and analyze the effect of the issuance of the promissory note.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 1
Accounts	- Select your answer -Cash Increase, Notes Payable IncreaseCash Increase, Notes Payable DecreaseCash Decrease, Notes Payable IncreaseCash Decrease, Notes Payable DecreaseCorrect 2 of Item 1
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 1

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Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -Accounts PayableAccounts ReceivableCapitalCashNotes PayableNo EntryCorrect 1 of Item 2

- Select your answer -CapitalCashNotes PayableNotes ReceivableUnearned RevenueNo EntryCorrect 3 of Item 2

- Select your answer -CapitalCashNotes PayableNotes ReceivableUnearned RevenueNo EntryCorrect 6 of Item 2

- Select your answer -Accounts PayableAccounts ReceivableCashCapitalNotes PayableNo EntryCorrect 8 of Item 2

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2. Identify and analyze the effect of any adjustments needed at year-end.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 3
Accounts	- Select your answer -Interest Payable Increase, Interest Expense IncreaseInterest Payable Increase, Interest Expense DecreaseInterest Payable Decrease, Interest Expense IncreaseInterest Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 3
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 3

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There are four types of adjusting entries: 1. Deferred expense the cash is paid before the expense is incurred. The adjusting entry is made to write off the asset and record the expense. 2. Deferred revenue the cash is received before the revenue is earned. An adjusting entry is needed to reduce the liability and record the revenue. 3. Accrued liability the expense is incurred before the cash is paid. An adjusting entry is needed to record the expense and the liability. 4. Accrued asset the revenue is earned before the cash is received. An adjusting entry is needed to record the asset and the revenue. Remember that adjusting entries never affect cash and at least one balance sheet and one income statement account are involved in each adjusting entry. Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Use months in calculation.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryCorrect 1 of Item 4

- Select your answer -Interest ExpenseInterest PayableInterest RevenueNotes PayableNotes ReceivableNo EntryCorrect 3 of Item 4

- Select your answer -Interest ExpenseInterest PayableInterest RevenueNotes PayableNotes ReceivableNo EntryCorrect 6 of Item 4

- Select your answer -CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryCorrect 8 of Item 4

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3. Identify and analyze the effect of the payment of principal and interest.

Activity	- Select your answer -OperatingInvestingFinancingCorrect 1 of Item 5
Accounts	- Select your answer -Cash Increase, Notes Payable Decrease, Interest Payable Decrease, Interest Expense IncreaseCash Increase, Notes Payable Decrease, Interest Payable Decrease, Interest Expense DecreaseCash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense IncreaseCash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 5
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5

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Identify and analyze the transaction by using the following steps: 1. Determine activity operating, investing or financing. 2. Determine accounts affected and the amount of increases/decreases. 3. Determine the financial statements affected balance sheet, income statement. The accounting equation must balance for each transaction.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Use months in calculation. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -Accounts PayableCapitalCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6

- Select your answer -CashInterest ReceivableInterest RevenueNotes PayableNotes ReceivableNo EntryCorrect 3 of Item 6

- Select your answer -Accounts PayableCapitalCashInterest ExpenseInterest ReceivableNo EntryCorrect 6 of Item 6

- Select your answer -Accounts PayableCashInterest ExpenseInterest ReceivableInterest RevenueNo EntryCorrect 8 of Item 6

- Select your answer -Accounts PayableAccounts ReceivableCapitalInterest ExpenseInterest PayableNo EntryCorrect 11 of Item 6

- Select your answer -Accounts PayableCashInterest PayableInterest ReceivableInterest RevenueNo EntryCorrect 13 of Item 6

- Select your answer -Accounts PayableCashInterest PayableInterest ReceivableInterest RevenueNo EntryCorrect 16 of Item 6

- Select your answer -Accounts PayableCashCapitalInterest PayableInterest ReceivableNo EntryCorrect 18 of Item 6