Problem 9-19B: Effect of Accrued Interest on Financial Statements

Accounting for Current Liabilities and Payroll

Problem 9-19B: Effect of Accrued Interest on Financial Statements

Ingals Co. issued $10,000 of common stock when the company was started. In addition, Ingals borrowed $20,000 from the local bank on April 1, Year 1. The note had an 8 percent annual interest rate and a one-year term to maturity. Ingals Co. recognized $54,000 of revenue on account in Year 1 and $65,000 of revenue on account in Year 2. Cash collections from accounts receivable were $46,000 in Year 1 and $63,000 in Year 2. Ingals Co. paid $27,000 of salaries expense in Year 1 and $36,000 of salaries expense in Year 2. Ingals Co. paid the loan and interest at the maturity date.

Required:

Based on the preceding information, answer the following questions. (Hint: Record the events in the accounting equation before answering the questions.)

a. What amount of net cash flow from operating activities would Ingals report on the Year 1 cash flow statement?
b. What amount of interest expense would Ingals report on the Year 1 income statement?
c. What amount of total liabilities would Ingals report on the December 31, Year 1, balance sheet?
d. What amount of retained earnings would Ingals report on the December 31, Year 1, balance sheet?
e. What amount of cash flow from financing activities would Ingals report on the Year 1 statement of cash flows?
f. What amount of interest expense would Ingals report on the Year 2 income statement?
g. What amount of cash flows from operating activities would Ingals report on the Year 2 cash flows statement?
h. What amount of total assets would Ingals report on the December 31, Year 2, balance sheet?