Ben Bradley started Bradley company on January 1, year one. The company experien

Question

Ben Bradley started Bradley company on January 1, year one. The company experience the following events during its first year of operations.
1.Earned $2000 in cash revenue for performing services 2.Borrowed $8000 cash from the bank 3. Adjusted the accounting records to recognize occurred interest expense on the bank note. The note, issued on August 1, year one, had a one year term and a 6% annual interest rate.
A. What is the amount of interest expense in year one?
B. What amount of cash was paid for interest in year one?
Chec c. Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate Also, in the Statement of Cash Flows column, designate the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction has been recorded as an example. (In the Statement of Cash Flows column, select "NA" if there is no effect.) er the event increases (U), decreases (D), or does not affect (NA) each element of the financial statements Income Statement Flows Liabilities Stockholders' Equity Revenue OA +NA +NA 0

Explanation / Answer

Interest expense in year 1 = 8000*6%*5/12 = 200

Interest paid in year 1 = $0

BRADLEY COMPANY Horizontal Financial statement model for year 1 Balance sheet Income statement Statement of cash flow Cash = Notes payable + Interest payable + Common Stock + Retained earnings Revenue - Expense = Net income 1 I = NA + NA + NA + I I - NA = I I OA 2 I = I + NA + NA + NA NA - NA = I I FA 3 NA = NA + I + NA + D NA - I = D NA

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