Question

A partial amortization schedule for a 10-year note payable issued on January 1, Year 1, is shown next:

Accounting Period	Principal Balance January 1			Cash Payment			Applied to Interest			Applied to Principal
Year 1	$	370,000		$	52,680		$	25,900		$	26,780
Year 2		343,220			52,680			24,025			28,655
Year 3		314,565			52,680			22,020			30,660

Required
a. Using a financial statements model like the one shown next, record the appropriate amounts for the following two events:

1. (1) January 1, Year 1, issue of the note payable.
2. (2) December 31, Year 1, payment on the note payable.

b. If the company earned $96,000 cash revenue and paid $62,000 in cash expenses in addition to the interest in Year 1, what is the amount of each of the following?

1. (1) Net income for Year 1.
2. (2) Cash flow from operating activities for Year 1.
3. (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.)

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	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.

Answer 1

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.

$ 370,000.00

(2) December 31, Year 1, payment on the note payable.

$   52,680.00

Effect of Transactions on Financial Statements

Balance Sheet

Income Statement

Event No.

Assets

=

Liabilities

+

Equity

Revenue

–

Expenses

=

Net Income

Statement of Cash Flows

1

$ 370,000.00

=

$ 370,000.00

+

NA

NA

–

=

$ 370,000.00

FA

2

$ (52,680.00)

$ (26,780.00)

+

$ (25,900.00)

NA

-

$ (25,900.00)

=

$ (25,900.00)

$ (26,780.00)

FA

$ (25,900.00)

OA

b. If the company earned $96,000 cash revenue and paid $62,000 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.
(a)	Net income for 2010.
Income Statement
For the Year Ended December 31 2010
Revenue		$ 96,000.00
Expenses
Operating expenses	$   62,000.00
Interest expense	$   25,900.00
Total Expenses		$ 87,900.00
Net income		$   8,100.00
b)
Cash Flows From Operating Activities:
Inflow from Customers	$   96,000.00
Outflow for Expenses	$ (87,900.00)
Net Cash Flow from Operating Activities		$   8,100.00
Cash Flows From Financing Activities:
Inflow from Issue of Note	$ 370,000.00
Outflow to Repay Note	$ (26,780.00)
Net Cash Flow from Financing activities	$ 343,220.00
c. What is the amount of interest expense on this loan for Year 4?
Interest Rate: = $25900/370,0000	7.00%
interest expense = 314,565 x 7%	$   22,019.55
Complete this question by entering your answers in the tabs below.
Required A	$ 370,000.00
	$   52,680.00
Required B1	$     8,100.00
Required B2	$     8,100.00
Required B3	$ 343,220.00
Required C	$   22,019.55