Use the following to answer questions 6 10

On October 1st, FLY Tech, an Airline maintenance company, borrows $250,000 cash from Bank of America to expand operations. FLY signs a 3 year, 3% promissory note. Interest ONLY is payable each September 30th until the note matures on September 30, year 4 at which time FLY will pay the principal on the loan and the loan will be paid off. FLYs year-end is December 31.

6.How is the loan classified on the companys December 31, year 1 balance sheet?

A. Current liability

B. Long term liability

C. Note disclosure only

D. Stockholders Equity

7.How is the loan classified on the companys December 31, year 1 statement of cash flow?

A. Operating activity

B. Investing activity

C. Financing activity

D. Not shown on the statement of cash flows

8.$_________ How much interest should be accrued on December 31 of the first year (assume no previous entry was recorded for interest on the loan)?

9.$______________When the note is paid at maturity (SEPTEMBER 30, year 4) how much cash is paid to Bank of America?

10. $_________ When the note is paid at maturity in the fourth accounting year, how much does net income decrease?