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E10-4A Holly Corp

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Exercise 10-4A Financial statement effects of an installment note
A partial amortization schedule for a five-year note payable that Holly Co. issued on January 1,
2013, is shown here:

Accounting period Principal Bal. Jan 1 Cash payment Applied interest Applied to principal
2013 .......50,000 .......11,549 ........2,500 .........8,959
2014 .......41,041 .......11,549 ........2,052 .........9,497

a. What rate of interest is Holly Co. paying on the note?
b. Using a financial statements model like the one shown below, record the appropriate amounts
for the following two events:
(1) January 1, 2013 issue of the note payable.
(2) December 31, 2014 payment on the note payable.
c. If the company earned $60,000 cash revenue and paid $30,000 in cash expenses in addition to
the interest in 2013 what is the amount of each of the following?
(1) Net income for 2013/
(2) Cash flow from operating activities for 2013
(3) Cash flow from financing activities for 2013
d. What is the amount of interest expense on this loan for 2015?

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