accounting queston 1

User Generated

obfpbif2005

Business Finance

Description

i am stuck on the following question. here is a picture of the question

http://imgur.com/1Q4D7E9

please show all work/how u got the answer

any help would be appreciated

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Explanation & Answer

                                                                     Flash coporation

a) Classic did not pay any amount for interest in 2010.

b)Amount of interest expense was reported on the 2010 income statement (for two months November and December 2010) = $120,000 *8% *2/12= $1,600

c)Total liabilities on the December 31, 2010:

            Notes Payable                            $120,000

            Interest Payable                               1,600

            Total liabilities                             $121,600

d) Interest expense for 2010 and 2011 =$120,000 *8%*6/12

                                                               = $4,800

    Total amount of cash was paid to bank on April 30, 2011 for principal and interest;

         Principal                                $120,000

         Add interest payable                   4,800

        Total cash payment to bank   $124,800

e) Amount of interest expense was reported on the 2011 income statement(for four months from January 1           to April 30, 2011 = $120,000 * 8%*4/12

                           = $3,200


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