Question

A partial amortization schedule for a 10-year note payable issued on January 1, Year 1, is shown next: Accounting Period Year 1 Year 2 Year 3 Principal Balance January 1 $380, eee 349,788 318,065 Cash Payment $49,212 49,212 49,212 Applied to Interest $19, eee 17,489 15,903 Applied to Principal $38,212 31,723 33,309 Required a. Using a financial statements model like the one shown next, record the appropriate amounts for the following two events: (1) January 1, Year 1, Issue of the note payable (2) December 31, Year 1, payment on the note payable. b. If the company earned $98,000 cash revenue and paid $63,000 in cash expenses in addition to the interest in Year 1, what is the amount of each of the following? (1) Net income for Year 1 (2) Cash flow from operating activities for Year 1. (3) Cash flow from financing activities for Year 1. c. What is the amount of interest expense on this loan for Year 4?

Answer 1

a)

	Balance Sheet			Income Statement			Statement of Cash Flows
S. No	Assets	Liabilities	Equity	Revenue	Expenses	Net Income	Cash Inflows	Cash Outflows
1.	$ 380,000	$ 380,000					$ 380,000
2.	$ (49,212)	$ (30,212)			$ 19,000	$ (19,000)		$ 49,212

b) 1)

Particular	Amount
Revenue	$ 98,000
Expenses :
Cash Expense	$ 63,000
Interest Expense	$ 19,000
Total Expenses	$ 82,000
Net Income	$ 16,000

2)

Cash flow from Operating activities :
Cash Revenue	$ 98,000
Cash Expense	$ (63,000)
Net Cash flow from Operating Activities	$ 35,000

3)

Cash Flow from Financing Activities :
10 -yr Note Payable	$ 380,000
Repayment of 10-yr Note Payable	$ (30,212)
Interest paid	$ (19,000)
Net cash flow from financing activities	$ 330,788

c. Interest Expenses on this loan for Year 4

= ($ 318,065 - $ 33,309)* 5% = $ 14,238