E3-12 Flynn Design Agency was founded by Kevin Flynn in January 2006. Presented
ID: 2386813 • Letter: E
Question
E3-12Flynn Design Agency was founded by Kevin Flynn in January 2006. Presented below is the adjusted trial balance as of Desember 31,2012
Dr. Cr.
Cash $10,000
accounts Receivable $21,500
Art Supplies $5,000
Prepaid Insurance $2,500
Printing Equipment $60,000
Accumulated Depreciation $35,000
Accounts Payable $8,000
Interest Payable $150
Notes Payable $5,000
Unearned Advertising Revenue $5,600
Salaries Payable $1,300
Common stock $10,000
Retained Earnings $3,500
Advertising Revenue $58,500
Salaries Expense $12,300
Insurance Expense $850
Interest Expense $500
Depreciation Expense $7,000
Art Supplies Expense $3,400
Rent Expense $4,000
Total $127,050 $127,050
A) Prepare an income statement and a statement of retained earnings for the year ending December 31, 2012 and an unclassified balance sheet at December 31.
B) Answer the following questions.
1) If the note has been outstanding 6 months, what is the annual interest rate on that notes?
2) If the company paid $17,500 in salaries in 2012 what was the balance in Salaries Payable on December 31, 2011?
Explanation / Answer
I'm concerned that you may have left something out that would help us to understand this problem better. Since interest expense is greater than interest payable, it looks like $350 of interest expense was for other notes that have been paid off, leaving $186 of accrued interest expense accumulated over the 6 month period for the $6,200 note. So if $186 has accrued, this is the way you would calculate the annual rate: 6,200 x APR x 6/12 = 186 Solve for APR APR = 6%
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