Chapter 7, Problem 26P

a.

To determine

Record the events in the accounting equation to identify the effects of transactions.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below.

$\text{Assets = Liabilities + Stockholders' Equity}$

Record the events in accounting equation:

Table (1)

Working note 1: Calculate the amount of Accrued interest for 2014:

$\begin{array}{c}\text{Accrued interest}=\text{Notes payable}\times \text{Interest rate}\times \frac{\text{Number of months}}{\text{Months in a year}}\\ =\$20,000\times 8\%\times \frac{9}{12}\left(\text{April to December}\right)\\ =\$1,200\end{array}$

Working note 2: Calculate the amount of Accrued interest for 2015:

$\begin{array}{c}\text{Accrued interest}=\text{Notes payable}\times \text{Interest rate}\times \frac{\text{Number of months}}{\text{Months in a year}}\\ =\$20,000\times 8\%\times \frac{3}{12}\left(\text{January to March}\right)\\ =\$400\end{array}$

b.

To determine

Identify the amount of net cash flow from operating activities that would be reported on the 2014 cash flow statement.

Explanation of Solution

Cash flows from operating activities refer to the cash received or cash paid in day-to-day operating activities of a company.

Calculate the cash flow from operating activities:

Corporation I
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Cash collected from revenue	$46,000
Cash paid for operating expenses	($27,000)
Net cash flow from operating activities		$19,000

Table (2)

Thus, the cash flow operating activities is $19,000 is the amount that would be reported on the statement of cash flows.

c.

To determine

Identify the amount of interest expense that would be reported on the 2014 income statement.

Explanation of Solution

Interest expense refers to the cost of debt which is incurred during a particular accounting period. The interest amount is a fixed interest rate payable on the principal amount of debt.

The amount of interest expense that would be reported on the 2014 income statement is $1,200 (1).

Thus, the interest expense is $1,200 the amount that would be reported on the income statement.

d.

To determine

Identify the amount of total liabilities that would be reported on the 2014 balance sheet.

Explanation of Solution

Total liabilities are the sum of financial obligations and debt owed by business.

Calculate the total liabilities:

Particulars	Amount ($)	Amount ($)
Notes payable	20,000
Interest payable	1,200
Total liabilities		21,200

Table (3)

Thus, the amount of total liabilities that would be reported on the 2014 balance sheet is $21,200.

e.

To determine

Identify the amount of retained earnings that would be reported on the 2014 balance sheet.

Explanation of Solution

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

The amount of retained earnings that would be reported on the 2014 balance sheet is $25,800.

f.

To determine

Identify the amount net cash flow from financing activities that would be reported on the 2014 statement of cash flows.

Explanation of Solution

Cash flow from financing activities:

This section of cash flows statement provides information about the cash inflow and outflow as a result of issuance and financing of debt, issue of new stock and payment of dividends.

Compute the cash from operating activities:

Corporation I
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from financing activities
Loan borrowed	$20,000
Net cash flow from operating activities		$20,000

Table (4)

Thus, the amount of cash flow from financing activities that would be reported on the statement of cash flow is $20,000.

g.

To determine

Identify the amount of interest expense that would be reported on the 2015 income statement.

Explanation of Solution

Interest expense refers to the cost of debt which is incurred during a particular accounting period. The interest amount is a fixed interest rate payable on the principal amount of debt.

The amount of interest expense that would be reported on the 2015 income statement is $400 (2).

h.

To determine

Identify the amount of net cash flow from operating activities that would be reported on the 2015 Statement of cash flows.

Explanation of Solution

Cash flows from operating activities refer to the cash received or cash paid in day-to-day operating activities of a company.

Calculate the cash flow from operating activities:

Corporation I
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Cash collected from accounts receivable	$63,000
Cash paid for operating expenses	($36,000)
Cash paid for interest	($1,600)
Net cash flow from operating activities		$25,400

Table (5)

Thus, the cash flow operating activities that would be reported on the statement of cash flows is $25,400.

i.

To determine

Identify the amount of total assets that would be reported on the 2015 balance sheet.

Explanation of Solution

Calculate the total assets:

Particulars	Amount ($)	Amount ($)
Cash	44,400
Accounts receivable	10,000
Total liabilities		54,400

Table (6)

Thus, the amount of total assets that would be reported on the 2015 balance sheet is $54,400