Money Lenders experienced the following accounting events in its first year of operation. 1. The company was started on January 1, Year 1 when it received $50,000 in cash for the sale of common stock. 2. Paid $4,200 cash for operating expenses. 3. Recognized $7,300 of cash service revenue. 4. Loaned $10,000 cash to Needy Company on July 1, Year 1. Needy Company signed a one- year note and agreed to pay 5% interest. 5. Money Lenders recognized accrued interest receivable at December 31, Year 1. Accounting events affecting Year 2 were as follows: 1. On July 1, Year 2 Money Lenders recognized the accrued interest receivable on the note re- ceivable. 2. Collect cash for accrued interest on the note receivable. 3. On July 1, Year 2, Money Lenders collected the principal balance of the note. 4. Recognized $9,500 of cash service revenue. 5. Paid $6,400 cash for operating expenses. Required a. Record the events for Year 1 and Year 2 in T-accounts. b. Prepare in income statement for Year 1 and Year 2. c. Determine the cash flow from interest for Year 1 and Year 2. d. Use a horizontal financial statements model to show how the events for Year 1 and Year 2 affect financial statements. Use a plus sign to indicate an increase, a minus sign to indicate a decrease, and the initials NA to indicate not affected. In the statement of cash flows column use, a plus sign to indicate a cash inflow, a minus sign to indicate a cash outflow. Also, use OA to indicate operating activities, IA to indicate investing activities, and FA to indicate fi- nancing activities.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Money Lenders experienced the following accounting events in its first year of operation.
1. The company was started on January 1, Year 1 when it received $50,000 in cash for the sale
of common stock.
2. Paid $4,200 cash for operating expenses.
3. Recognized $7,300 of cash service revenue.
4. Loaned $10,000 cash to Needy Company on July 1, Year 1. Needy Company signed a one-
year note and agreed to pay 5% interest.
5. Money Lenders recognized accrued interest receivable at December 31, Year 1.
Accounting events affecting Year 2 were as follows:
1. On July 1, Year 2 Money Lenders recognized the accrued interest receivable on the note re-
ceivable.
2.
Collect cash for accrued interest on the note receivable.
On July 1, Year 2, Money Lenders collected the principal balance of the note.
4. Recognized $9,500 of cash service revenue.
5. Paid $6,400 cash for operating expenses.
Required
a. Record the events for Year 1 and Year 2 in T-accounts.
b. Prepare in income statement for Year 1 and Year 2.
c. Determine the cash flow from interest for Year 1 and Year 2.
d. Use a horizontal financial statements model to show how the events for Year 1 and Year 2
affect financial statements. Use a plus sign to indicate an increase, a minus sign to indicate a
decrease, and the initials NA to indicate not affected. In the statement of cash flows column
use, a plus sign to indicate a cash inflow, a minus sign to indicate a cash outflow. Also, use
OA to indicate operating activities, IA to indicate investing activities, and FA to indicate fi-
nancing activities.
Transcribed Image Text:Money Lenders experienced the following accounting events in its first year of operation. 1. The company was started on January 1, Year 1 when it received $50,000 in cash for the sale of common stock. 2. Paid $4,200 cash for operating expenses. 3. Recognized $7,300 of cash service revenue. 4. Loaned $10,000 cash to Needy Company on July 1, Year 1. Needy Company signed a one- year note and agreed to pay 5% interest. 5. Money Lenders recognized accrued interest receivable at December 31, Year 1. Accounting events affecting Year 2 were as follows: 1. On July 1, Year 2 Money Lenders recognized the accrued interest receivable on the note re- ceivable. 2. Collect cash for accrued interest on the note receivable. On July 1, Year 2, Money Lenders collected the principal balance of the note. 4. Recognized $9,500 of cash service revenue. 5. Paid $6,400 cash for operating expenses. Required a. Record the events for Year 1 and Year 2 in T-accounts. b. Prepare in income statement for Year 1 and Year 2. c. Determine the cash flow from interest for Year 1 and Year 2. d. Use a horizontal financial statements model to show how the events for Year 1 and Year 2 affect financial statements. Use a plus sign to indicate an increase, a minus sign to indicate a decrease, and the initials NA to indicate not affected. In the statement of cash flows column use, a plus sign to indicate a cash inflow, a minus sign to indicate a cash outflow. Also, use OA to indicate operating activities, IA to indicate investing activities, and FA to indicate fi- nancing activities.
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