From the balance sheet: Cash....................................................

Question

From the balance sheet:
Cash.............................................................$30,000
Accounts receivable.......................................150,000
Inventory.......................................................200,000
Plant assets(net of acc. deprec.)..................... 500,000
Current liabilities............................................150,000
Total stockholders equity.................................300,000
Total assets.....................................................1,000,000
From the income statement:
netsales..............................................................$ 1,500,000
Cost of goods sold.................................................1,080,000
Operating expenses................................................315,000
interestexpense.........................................................84,000
income taxexpense....................................................6,000
Netincome.............................................................15,000 From the statement of cash flows:
Net cash provided by operating............................... $40,000
(including interest paid of $79,000)
net cash used in investing activities.............................(46,000)
Financing activities:
Amounts borrowed..............................$ 50,000
repayment of amounts borrowed............ (14,000)
Dividends paid........................................(20,000)
Net cash provided by financingactivities.......................16,000
Net increase in cash during theyear.................................... $10,000    Explain how the interest expense shown in theincome statement could be $84,000 when the interest paymentappearing in the statement of cash flows is only $79,000 From the balance sheet:
Cash.............................................................$30,000
Accounts receivable.......................................150,000
Inventory.......................................................200,000
Plant assets(net of acc. deprec.)..................... 500,000
Current liabilities............................................150,000
Total stockholders equity.................................300,000
Total assets.....................................................1,000,000
From the income statement:
netsales..............................................................$ 1,500,000
Cost of goods sold.................................................1,080,000
Operating expenses................................................315,000
interestexpense.........................................................84,000
income taxexpense....................................................6,000
Netincome.............................................................15,000 From the statement of cash flows:
Net cash provided by operating............................... $40,000
(including interest paid of $79,000)
net cash used in investing activities.............................(46,000)
Financing activities:
Amounts borrowed..............................$ 50,000
repayment of amounts borrowed............ (14,000)
Dividends paid........................................(20,000)
Net cash provided by financingactivities.......................16,000
Net increase in cash during theyear.................................... $10,000    Explain how the interest expense shown in theincome statement could be $84,000 when the interest paymentappearing in the statement of cash flows is only $79,000

Explanation / Answer

We must note that Cash Flows take actual Cash being used bybusiness (Use) or generated by Business (Source). Provisions ofvarious expenses are Prepaid expenses or Expenses Due which mayhave been charged to Income Stt as they were used during the yearbut are not yet due for payment. Thus they get carried to Balancesheet. In above case, 84000 is charged as Interest expense in generatingthe Income for the year but only 79000 is actually paid out. Thusthe balance 5000 will appear in Balance sheet as "INterest Payable5000". Hope this answers your query.

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