Question

Notes Payable

A business issued a 180-day, 8% note for $52,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Statement of Cash Flows Income Statement No effect No effect

b. Illustrate the effects on the accounts and financial statements of recording the payment of the note at maturity, including interest. Assume a 360-day year. If required, round interest expense to the nearest whole number.

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Statement of Cash Flows Income Statement Operating Interest expense

Answer 1

Part A -NOTES PAYABLE Accounts payable Notes payable 52000 52000 Bal. sheet Assets = Liabilities + SE Inc. Stmt. CFS NO effect Accounts payable 52000 NO effect Notes payable52000 Net effect 0 NO effect NO effect Part B -NOTES PAYABLE Notes payable Intt. Exp. ( 52000 * 8 % * 180 / 360 ) Cash 52000 2080 54080 Bal. sheet Assets- Liabilities SE Inc. Stmt. CFS Cash 54080 Notes payable-52000ained earnings-2080 Intt. Exp-2080Operating activity-52000 (decrease in NP) Operating activity- 2080 (intt. Exp.

Elaborate explanation has been provided for conceptual clarification purpose.