Notes Payable and Interest

On July 1, 2017, Kami's Crafts borrowed $21,000 from the bank. Kami signed a ten-month, 8% promissory note for the entire amount. Kami's uses a calendar year-end.

Required:

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

Activity	OperatingInvestingFinancingFinancing
Accounts	Cash Increase, Notes Payable IncreaseCash Increase, Notes Payable DecreaseCash Decrease, Notes Payable IncreaseCash Decrease, Notes Payable DecreaseCash Increase, Notes Payable Increase
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet only

Feedback

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

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableAccounts ReceivableCapitalCashNotes PayableNo EntryCash

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CapitalCashNotes PayableNotes ReceivableUnearned RevenueNo EntryNotes Payable

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CapitalCashNotes PayableNotes ReceivableUnearned RevenueNo EntryNo Entry

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Accounts PayableAccounts ReceivableCapitalCashNotes PayableNo EntryNo Entry

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Feedback

Partially correct

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

Activity	OperatingInvestingFinancingOperating
Accounts	Interest Payable Increase, Interest Expense IncreaseInterest Payable Increase, Interest Expense DecreaseInterest Payable Decrease, Interest Expense IncreaseInterest Payable Decrease, Interest Expense DecreaseInterest Payable Increase, Interest Expense Increase
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet and Income Statement

Feedback

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. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryNo Entry

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Interest ExpenseInterest PayableInterest RevenueNotes PayableNotes ReceivableNo EntryInterest Payable

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Interest ExpenseInterest PayableInterest RevenueNotes PayableNotes ReceivableNo EntryNo Entry

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CashInterest ExpenseInterest PayableInterest RevenueNotes PayableNo EntryInterest Expense

fill in the blank 7c5a30f78fc9001_9

fill in the blank 7c5a30f78fc9001_10

Feedback

Partially correct

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

Activity	OperatingInvestingFinancingFinancing
Accounts	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 DecreaseCash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense Increase
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance Sheet and Income Statement

Feedback

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

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableCapitalCashInterest ExpenseInterest PayableNo EntryCash

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CashInterest ReceivableInterest RevenueNotes PayableNotes ReceivableNo EntryNotes Payable

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Accounts PayableCapitalCashInterest ExpenseInterest ReceivableNo EntryNo Entry

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Accounts PayableCashInterest ExpenseInterest ReceivableInterest RevenueNo EntryInterest Expense

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Accounts PayableAccounts ReceivableCapitalInterest ExpenseInterest PayableNo EntryNo Entry

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Accounts PayableCashInterest PayableInterest ReceivableInterest RevenueNo EntryInterest Payable

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Accounts PayableCashInterest PayableInterest ReceivableInterest RevenueNo EntryNo Entry

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Accounts PayableCapitalCashInterest PayableInterest ReceivableNo EntryNo Entry

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