Question

Malco Enterprises issued $28,000 of common stock when the company was started. In addition, Malco borrowed $54,000 from a local bank on July 1, Year 1. The note had a 6 percent annual interest rate and a one-year term to maturity. Malco Enterprises recognized $92,300 of revenue on account in Year 1 and $103,200 of revenue on account in Year 2. Cash collections of accounts receivable were $79,300 in Year 1 and $89,500 in Year 2. Malco paid $55,200 of other operating expenses in Year 1 and $63,000 of other operating expenses in Year 2. Malco repaid the loan and interest at the maturity date. Required Based on this information given above, record the events in the accounting equation and answer the following questions. (Enter any decreases to account balances with a minus sign.)

a. What amount of interest expense would Malco report on the Year 1 income statement?

b. What amount of net cash flow from operating activities would Malco report on the Year 1 statement of cash flows?

c. What amount of total liabilities would Malco report on the December 31, Year 1, balance sheet?

d. What amount of retained earnings would Malco report on the December 31, Year 1, balance sheet?

e. What amount of net cash flow from financing activities would Malco report on the Year 1 statement of cash flows?

f. What amount of interest expense would Malco report on the Year 2 income statement?

g. What amount of net cash flow from operating activities would Malco report on the Year 2 statement of cash flows?

h. What amount of total assets would Malco report on the December 31, Year 2, balance sheet?

i. What amount of net cash flow from investing activities would Malco report on the Year 2 statement of cash flows?

j. If Malco Enterprises paid a $3,800 dividend during Year 2, what retained earnings balance would it report on the December 31, Year 2, balance sheet?

Answer 1

a)

interst expense on year 1

54000*6%*6/12 =$ 1620

b) cash flow collection in operating statement

decrease in recievable =$79300

operating exxpense paid =(55200)

interest expense (1620)

net cash flow =$22480

c)

liability in year 1

54000-1620 = $52380

d)retained earnings on year 1

revenue $92300

operating epense(55200)

interest expense =(1620)

retained earnings = $35480

e)net cash flow in financing activities

cash from loan =$54000

net cash flow - $54000

f)interest expense in year 2

54000*6%*6/12 = 1620$

g)net cash flow form operating activities year 2

decrease in recievable $89500

operating expense (63000)

interest expense(1620)

net cash flow = $24880

h) total asset in year 2

cash from receivable = $89500

revenue as recievable = $92300

total assets =$181800

i) cash flow form investing activities

loan repayment (54000)

net cash flow $ -54000

j) retained earnings in year 2

revenue 92300

operating expense(63000)

dividned (3800)

retained earnings $ 25500