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ID: 2567294 • Letter: H

Question

https// ucatiorcom now icoe nethtmTesRe9" true&returnUrl.; hetps%3A%2F%2fconnectnteducaton.com%2F paan v eb%2Findex htersa Liabilities Bill Darby started Darby Company on January 1, 2018. 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 t, 2018, had a one-year term and an 8 percent annual interest rate Required a. What is the amount of interest expense in 2018 b. What amount of cash was paid for interest in 2018? c. 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 (0. decreases (D), or does not affect (NA) each element of the financial statements In the Cash Flows column, designate the cash flows as operating activities (OA), investing activities (A), or financing activities (FA) The first transaction has been recorded as an example. tabs below Complete this question by entering your answers in the Rea A and B Req C What is the amount of interest expense and the cash paid for interest in 2018? (Do not round intermediate calculations.) b Amount of cash Prov 1of 4111 Next >

Explanation / Answer

Solution:

a) Amount of Interest Expense in 2018 =

Issue Date of Note = Sept.1, 2018

Interest Expenses to be recorded as on Dec 31, 2018 for 4 months (Sept to Dec 2018) = Face Value of Notes x 8%*4/12

= 12,000*8%*4/12

= $320

b) Amount of Cash = $0

Since the notes had a one year term. The interest and face value will be paid at the time of maturity. Hence no Cash interest to be paid in year 2018.

Horizontal Statements Model for 2018

Balance Sheet

Income Statement

Statement of Cash Flows

Event

Assets

Liabilities

Stockholder's Equity

Revenue

Expenses

Net Income

No.

Cash

Notes Payable

Interest Payable

Common Stock

Retained Earnings

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