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19 October, 07:24

On January 1, 2013, Hays borrowed an additional $1,000 from Barnett Bank, bringing the total amount borrowed to $2,000. On January 1, 2014, Hays paid $500 on the principal of the loan. On December 31, 2014, Hays records the 2014 interest payment. The prime rate for 2014 was 5 percent. Which of the following answers shows the effect of the 2014 interest payment on the financial statements?

Assets Liabilities Equity Revenue Expenses Net Inc. Cash

A (75) (75) NA NA NA NA (75) FA

B (75) NA (75) NA 75 (75) (75) OA

C (90) (90) NA NA NA NA (90) FA

D (90) NA (90) NA 90 (90) (90) OA

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Answers (1)
  1. 19 October, 10:23
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    Answer:B. (75) NA (75) NA 75 (75) (75) OA

    Explanation:

    Interest payment = $1500 x 5/100 = $75

    When Interest expense is incurred and paid, The Statement of Financial Position (Balance Sheet) and Statement of comprehensive income (Income statement) will be affected. Effects on the Balance sheets; Assets decrease, owners equity decrease. Effects on Income statement; Expenses increase, net income decrease as a result of an increase in expenses and Cash will decrease because interest payment is an out flow of cash
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Home » Business » On January 1, 2013, Hays borrowed an additional $1,000 from Barnett Bank, bringing the total amount borrowed to $2,000. On January 1, 2014, Hays paid $500 on the principal of the loan. On December 31, 2014, Hays records the 2014 interest payment.
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