Question 2
Exercise 9-2A Effects of recognizing accrued interest on financial statements LO 9-1 Bill Darby started Darby Company on January 1, Year 1. The company experienced the following events during its first year of operation: 1. Earned $1,900 of cash revenue. 2. Borrowed $2,100 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 9 percent annual interest rate. Required a. What is the amount of interest payable at December 31, Year 1? b. What is the amount of interest expense in Year 1? c. What is the amount of interest paid in Year 1? d. 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) each element of the financial statements. 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. Complete this question by entering your answers in the tabs below. Req A to C ReqD What is the amount of interest payable at December 31, Year 1? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) What is the amount of interest expense in Year 1? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) What is the amount of interest paid in Year 1? Show less a. b. Interest payable Interest expense Amount of cash paid c. Complete this question by entering your answers in the tabs below. Req A to C Req D 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 (I) or decreases (D) each element of the financial statements. 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.) Show less A DARBY COMPANY Statements Model for Year 1 Balance Sheet Income Statement Event Assets Liabilities Stockholders' Equity Revenue Expense = Net Income Statement of Cash Flows No Cash Notes Payable + Interest Payable Common Stock Retained Earnings 1 1 = 1 1 1 1 OA ITTI 2 3 Exercise 10-4A Financial statement effects of an installment note LO 10-1 A partial amortization schedule for a 10-year note payable issued on January 1, Year 1, is shown next: Accounting Period Year 1 Year 2 Year 3 Principal Balance January 1 $230,000 211,714 192,514 Cash Payment $29,786 29,786 29,786 Applied to Interest $11,500 10,586 9,626 Applied to Principal $18, 286 19,200 20,160 Required a. Using a financial statements model like the one shown next, record the appropriate amounts for the following two events: (1) January 1, Year 1, issue of the note payable. (2) December 31, Year 1, payment on the note payable. b. If the company earned $68,000 cash revenue and paid $48,000 in cash expenses in addition to the interest in Year 1, what is the amount of each of the following? (1) Net income for Year 1. (2) Cash flow from operating activities for Year 1. (3) Cash flow from financing activities for Year 1. c. What is the amount of interest expense on this loan for Year 4? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required B3 Required C Using a financial statements model like the one shown next, record the appropriate amounts for the following two events: (1) January 1, Year 1, issue of the note payable. (2) December 31, Year 1, payment on the note payable. (In the Statement of Cash Flows column, use the initials oa to designate operating activity, IA for investing activity, FA for financing activity and NA to indicate the element is not affected by the event. Enter any decreases to account balances with a minus sign.) Show less Effect of Transactions on Financial Statements Balance Sheet Income Statement Event No. Assets Liabilities Equity Revenue - Expenses = Net Income Statement of Cash Flows 1. 2. c. What is the amount of interest expense on this loan for Year 4? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required B3 Required C If the company earned $68,000 cash revenue and paid $48,000 in cash expenses in addition to the interest in Year 1, what is the amount of Net income for Year 1? Expenses Total expenses c. What is the amount of interest expense on this loan for Year 4? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required B3 Required C If the company earned $68,000 cash revenue and paid $48,000 in cash expenses in addition to the interest in Year 1, what is the amount of Cash flow from operating activities for Year 1? (Amounts to be deducted should be indicated with minus sign.) Cash flows from operating activities: Net cash flow from operating activities c. What is the amount of interest expense on this loan for Year 4? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required B3 Required C If the company earned $68,000 cash revenue and paid $48,000 in cash expenses in addition to the interest in Year 1, what is the amount of Cash flow from financing activities for Year 1? (Amounts to be deducted should be indicated with minus sign.) Cash flows from financing activities: Net cash flow from financing activities c. What is the amount of interest expense on this loan for Year 4? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required B3 Required What is the amount of interest expense on this loan for Year 4? (Round your answer to the nearest dollar amount.) Interest expense
