On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $42,000 face...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $42,000 face value, four-year term note that had an 6 percent annual interest rate. The note is to be repaid by making annual cash payments of $12,121 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $22,260 cash per year.

Prepare an income statement, a balance sheet, and a statement of cash flows for each of the four years.

Solutions

Expert Solution

Brown Co.
Income Statement
For the Year Ended December 31
	2018	2019	2020	2021
Rental revenue	22260	22260	22260	22260
Expenses:
Interest expense	2520	1944	1333	687
Net income	19740	20316	20927	21573

Brown Co.
Balance Sheet
December 31
	2018	2019	2020	2021
Assets
Cash	10139	20278	30417	40556
Land	42000	42000	42000	42000
Total assets	52139	62278	72417	82556
Liabilities and Owner's Equity
Note payable	32399	22222	11434	0
Retained earnings	19740	40056	60983	82556
Total liabilities and owner's equity	52139	62278	72417	82556

Brown Co.
Statement of Cash Flows
For the Year Ended December 31
	2018	2019	2020	2021
Cash flow from operating activities
Cash collected for rental revenue	22260	22260	22260	22260
Cash paid for interest	-2520	-1944	-1333	-687
Net cash provided (used) by operating activities	19740	20316	20927	21573
Cash flow from investing activities
Purchase of land	-42000	0	0	0
Net cash provided (used) by investing activities	-42000	0	0	0
Cash flow from financing activities	0	0	0	0
Borrowing on notes payable	42000	0	0	0
Repayment of borrowings	-9601	-10177	-10788	-11434
Net cash provided (used) by financing activities	32399	-10177	-10788	-11434
Net increase (decrease) in cash	10139	10139	10139	10139
Beginning cash balance	0	10139	20278	30417
Ending cash balance	10139	20278	30417	40556

Working:

Date	Principal	Interest	Payment	Balance
Jan. 1, 2018				42000
Dec. 31, 2018	9601	2520	12121	32399
Dec. 31, 2019	10177	1944	12121	22222
Dec. 31, 2020	10788	1333	12121	11434
Dec. 31, 2021	11434	687	12121	0
	42000	6484	48484

ekkarill92 answered 1 year ago

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