Question

Ben Bradley started Bradley Company on January 1, Year 1. The company experienced the following events during its first year of operation: 1. Earned $2,400 of cash revenue for performing services, 2. Borrowed $3,900 cash from the bank. 3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on August 1, Year 1, had a one-year term and a 8 percent annual interest rate. Required a. What is the amount of interest expense in Year 1? Interest expense b. What amount of cash was paid for interest in Year 1? < Prey 4 of 4 IH Next

Answer 1

a) Interest expense = 3900*8%*5/12 = 130

b) Cash interest paid = $0

c) Accounting equation

Balance Sheet

Income statement

Statement of Cash flows

Assets

=

Liabilities

+

Stockholder's equity

Revenue

-

Expense

=

Net income

Event

Cash

=

Notes payable

+

Interest payable

+

Common Stock

+

Retained earnings

1

I

I

I

I

I OA

2

I

I

I FA

3

I

D

I

D

NA