In: Accounting
On November 1, 2018, Company borrowed $30,000 from a bank
1) sign a 12-month, 6% interest bearing note with interest and principal due on October 31, 2019. What should the company report on B/S, I/S and Statement of cashflow on Dec 31, 2018 and Dec 31, 2019?( Interest on the interest bearing notes is compounded monthly).
2) sign a 12-month, 6% non-interest bearing note due on October 31, 2019. What should the company report on B/S, I/S and Statement of cashflow on Dec 31, 2018 and Dec 31, 2019? (Interest on thenon-interest bearing notes is compounded monthly).
1) Interest on Interest Bearing Note on 31,Dec. 2019 = Principal X Rate X Time
= $30,000 x 6% x 12/12 = $1,800.
Maturity value = $30,000 + $1800 = $31,800.
Interest on Interest Bearing Note on 31,Dec. 2018 = Principal X Rate X Time = $30,000 x 6% x 2/12 = $300.
On December 31, 2018, your balance sheet will show $30,300 of cash and $30,000 of notes payable.The income statement will have $300 of interest expense accrued, which will lower your net income.You would report a $300 cash outflow in the operating activities section.This lowers your total cash flow by $300.
On December 31, 2019 (the following year), your balance sheet will show $31,800 of cash and $30,000 of notes payable. The income statement will have $1,800 of interest expense accrued, which will lower your net income.You would report a $1,800 cash outflow in the operating activities section.This lowers your total cash flow by $1,800.