Helen Parish started a design company on January 1, 2016. On April 1, 2016, Pari

Question

Helen Parish started a design company on January 1, 2016. On April 1, 2016, Parish borrowed cash from a local bank by issuing a one-year $42,400 face value note with annual interest based on an 12 percent discount. During 2016, Parish provided services for $37,950 cash. Required Answer the following questions. Record the events in T-accounts prior to answering the questions. (Select "1, 2, or 3" for the transactions in the order they take place. Round your answers to nearest dollar amount.) a. What is the amount of total liabilities on the December 31, 2016, balance sheet? (Round your answer to nearest dollar amount.) b. What is the amount of net income on the 2016 income statement? (Round your intermediate calculations and final answer to nearest dollar amount.) c. What is the amount of cash flow from operating activities on the 2016 statement of cash flows? d. Provide the general journal entries necessary to record issuing the note on April 1, 2016; recognizing accrued interest on December 31, 2016; and repaying the loan on March 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest dollar amount.)

Explanation / Answer

Solution:

T-Accounts

Debit

Credit

Revenue earned

$37,950

Notes Payable

Debit

Credit

April.1, 2016 Borrowed Cash

$42,400

Interest Expense

Debit

Credit

Dec.31, 2016

$3,816

Interest Payable

Debit

Credit

Dec.31, 2016 (42400*12%*9/12)

$3,816

Cash

Debit

Credit

April.1, 16 Borrowed Cash

$42,400

Part a --

Total Liabilities on Dec 31, 2016 = Notes payable + Interest Payable = 42,400 + 3,816 = $46,216

Part b –

Net Income 2016 = Service Revenue – Interest Expense = $37,950 – 3,816 = $34,134

Part c –

Cash Flow from operating activities 2016 = service revenue = $37,950

Cash flow from Operating activities means the cash used or generated from core principal activities of business. It involves revenue from sale of goods or rendering of services.

Part d – Journal entries

Date

General Journal

Debit

Credit

April.1, 2016

Cash

$42,400

Notes Payable

$42,400

Dec.31, 2016

Interest Expense

$3,816

Interest Payable

$3,816

March.31, 2017

Notes Payable

$42,400

Interest Payable

$3,816

Interest Expense (42,400*12%*3/12)

$1,272

Cash

$47,488

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Debit

Credit

Revenue earned

$37,950

Notes Payable

Debit

Credit

April.1, 2016 Borrowed Cash

$42,400

Interest Expense

Debit

Credit

Dec.31, 2016

$3,816

Interest Payable

Debit

Credit

Dec.31, 2016 (42400*12%*9/12)

$3,816

Cash

Debit

Credit

April.1, 16 Borrowed Cash

$42,400

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.