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

Question

Business

Marissa

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

+5

Answers (1)

Know the Answer?

Emma · Answer 1

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