Question

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On May 1, 2018, Benz's Sandwich Shop loaned $20,000 to Mark Henry for one year at 6 percent interest. Required e. What is Benz's interest income for 2018? (Round your answer to the nearest dollar amount.) Saterest income b. What is Benz's total amount of receivables at December 31, 2018? (Round your answer to the nearest dollar amount.) Receivables c. How will the loan and interest be reported on Benz's 2018 statement of cash flows?

Answer 1

(a) Interest income for 2018 will be calculated for 8 months i.e. from May 1 to December 31.

Interest income = $20000 * 6% * 8 / 12

Interest income = $800.

(b) Total amount of receivables will include Principal amount and interest for 8 months as calculated in point (a) above.

Total receivables = $20000 + $800 = $20800

(c) In the 2018 statement of cash flows, loan of $20000 will be shown as part of cash outflows from investing activities.

Since, interest is not yet paid, so it will not figure under statement of cash flows.

(d) Interest income for 2019 will be calculated for 4 months i.e. from January 1 to April 30.

Interest income = $20000 * 6% * 4 / 12

Interest income = $400.

(e) Total amount of cash that Benz will collect from Henry in 2019 will be the principal loan and interest for one year.

Cash collected in 2019 = $20000 + ($20000 * 6%)

Cash collected in 2019 = $20000 + $1200 = $21200

(f) In the 2019 statement of cash flows, loan of $20000 will be shown as part of cash inflows from investing activities.

Since, interest will be paid in 2019, and it is an income for Benz, so it will be shown as part of cash inflows from operating activities.

(g) Total interest earned = $20000 * 6% = $1200