Problem $2-23$B Notes payable and accrued interest over two accounting cycles

Matchstix was started on January $1,$ Year $1.$

Year $1$ Transactions:

Acquired $$50,000$ cash by issuing common stock.

Earned $$24,000$ of revenue on account.

On October $1,$ Year $1,$ borrowed $$22,000$ cash from the local bank.

Incurred $$10,500$ of operating expenses on account.

Collected $$7,000$ cash from accounts receivable.

Paid $$3,500$ cash to pay off a portion of the accounts payable.

On December $31,$ Year $1,$ Matchstix recognized accrued interest expense. The note had a one$-$year

term and a $6$ percent annual interest rate.

Year $1$ Transactions:

Collected cash for the remaining balance in accounts receivable.

Paid cash to settle the remaining balance of accounts payable.

On September $30,$ Year $2,$ recognized accrued interest expense.

On September $30,$ Year $2,$ paid cash to settle the balance of the Interest Payable account.

On September $30,$ Year $2,$ paid cash to settle the notes payable.

Required

a$.$ Record the events for Year $1$ and Year $2$ in an accounting equation. At the end of Year $1,$ total the

columns to determine the Year $1$ account balances. The Year $1$ ending balances become the Year $2$

beginning balances. At the end of Year $2,$ total the columns to determine the ending account bal$-$

ances for Year $2.$

b$.$ Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and

a statement of cash flows for Year $1$ and Year $2.$

c$.$ If the company were liquidated at the end of Year $2,$ how much cash would be distributed to credi$-$

tors? How much cash would be distributed to investors?