Bill Darby started Darby Company on January 1, 2018. The company experienced the
ID: 2551240 • Letter: B
Question
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 $12,000 cash from the bank.
3.Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, 2018, had a one-year term and an 8 percent annual interest rate.
Required
A.What is the amount of interest expense to record for 2018?
B.What amount of cash was paid for interest in 2018?
C.Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I), decreases (D), or does not affect (NA) each element of the financial statements. In the Cash Flows column, designate the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction has been recorded as an example.
Explanation / Answer
1.amount of interest expense to record for 2018 = ($ 12,000 * 8/100) * 4/100
= $ 320
2. cash was paid for interest in 2018 will Be $320 because as calculated in Question 1 the same will payable in cash.
3. 1st Transaction = Incrase , Cash Flow from Operating Activities
2nd Transaction = NA (Cash Recevied and Liablities of the same amount) , Cash Flow From Financing Activities
3rd Transaction= Decreases , Cash Floe from operating activities.
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