Bill Darby started Darby Company on January 1, 2016. The company experienced the

Question

Bill Darby started Darby Company on January 1, 2016. The company experienced the following events during its first year of operation: 1. Earned $1,300 of cash revenue. 2. Borrowed $2,600 cash from the bank. 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, 2016, had a one-year term and a 9 percent annual interest rate.

a. What is the amount of interest payable at December 31, 2016? Round answer to the nearest dollar amount.

b. What is the amount of interest expense in 2016? Round answer to nearest dollar amount

c. What is the amount of interest paid in 2016?

d. 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 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. ( Leave no cells blank)

P.S I did not mean to put that table below this, I was not sure how to get rid of it.

Interest payable

Explanation / Answer

a & b:

* Period from Sep.1 to Dec 31 = 4 months

Entry:

For 2016 interest expense= interest payable= 78

c. in 2016 note amount is not yet due, hence no interest is paid in 2016.

Cash interest paid= 0

Accrued interest for 2016 Amount borrowed 2600 Rate of interest 9% Total interest 234 [2600*9%] Interest per month 19.5 [234/12] Number of months interest accrued* 4 Interest accrued 78 [19.5*4]

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