Question

Bill Darby started Darby Company on January 1, Year 1. The company experienced the following events during its first year of operation: 1. Earned $16,200 of cash revenue. 2. Borrowed $12,000 cash from the bank 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, Year 1, had a one-year term and art 8 percent annual interest rate. Required a. What is the amount of interest payable at December 31, Year 1? b. What is the amount of interest expense in Year 1? c. What is the amount of interest paid in Year 1? d. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I) or decreases (D) each element of the financial statements. In the Statement of Cash Flows column, classify the cash flows as operating activities (OA). Investing activities (IA) or financing activities (FA), Columns for events that have no effect on any of the elements should be left blank. The first transaction has been recorded as an example. Complete this question by entering your answers in the tabs below. Req A toc Reg D What is the amount of interest payable at December 31, Year 1? (Do not round intermediate calculations.) What is the amount of interest expense in Year 17 What is the amount of interest paid in Year 17 a. Interest payable b. Interest expense c. Amount of cash paid

Answer 1

Answers

--Requirements

a	Interest Payable	$320	$12000 x 8% x 4/12
b	Interest Expense	$320	$12000 x 8% x 4/12
c	Amount of Cash paid for Interest	$0	[because it will be made at the time of maturity in Year 2]

No	Cash	Notes Payable	Interest Payable	Common Stock	Retained earnings	Revenues	Expenses	Net Income	Statement of Cash Flows
1	Increase				Increase	Increase		Increase	Increase	OA
2	Increase	Increase							Increase	FA
3			Increase		Decrease		Increase	Decrease