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Powell Co. borrowed $20,000 from the local bank on April 1,2014, when the company was started. The note had an 8 percentannual interest rate and a one-year term to maturity. Powell Co.recognized $54,000 of revenue on account in 2014 and $65,000 ofrevenue on account in 2015. Cash collections from accountsreceivable were $46,000 in 2014 and $63,000 in 2015. Powell Co.paid $27,000 of salaries expense in 2014 and $36,000 of salariesexpense in 2015. Powell Co. paid the loan and interest at thematurity date. Required a. Organize the information in accountsunder an accounting equation. (Enter any decreases to accountbalances with a minus sign. Select "NA" if there is no effect onthe "Accounts Titles for Retained Earnings".) b. What amount of netcash flow from operating activities would be reported on the 2014cash flow statement? (Enter cash outflows as negative amounts.) c.What amount of interest expense would be reported on the 2014income statement? d. What amount of total liabilities would bereported on the December 31, 2014, balance sheet? e. What amount ofretained earnings would be reported on the December 31, 2014,balance sheet? f. What amount of cash flow from financingactivities would be reported on the 2014 statement of cash flows?(Enter cash outflows as negative amounts.) g. What amount ofinterest expense would be reported on the 2015 income statement? h.What amount of cash flows from operating activities would bereported on the 2015 cash flow statement? (Enter cash outflows asnegative amounts.) i. What amount of assets would be reported onthe December 31, 2015, balance sheet? ReferencesWorksheetDifficulty: 3 HardLearning Objective: 07-01 Show how notespayable and related interest expense affect financial statements.Check my work ©2016 McGraw-Hill Education. All rights reserved.Requires a modern browser - e.g. Safari 1, Netscape 6 or IE 5

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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The followingtransactions apply to Brooks Co. for 2014, its first year ofoperations.
1. Issued $60,000of common stock for cash.
2. Provided $74,000of services on account.
3. Collected$62,000 cash from accounts receivable.
4.

Loaned $15,000 to Horne Co. on October 1, 2014. The note had aone-year term to maturity and an 8 percent interest rate.
5. Paid $47,000 ofsalaries expense for the year.
6. Paid a $2,500dividend to the stockholders.
7. Recorded theaccrued interest on December 31, 2014 (see item 4).
8.

Uncollectible accounts expense is estimated to be 1 percent ofservice revenue on account

Show the effects of the above transactions in a horizontalstatements model like the one shown below. In the Cash Flow column,indicate whether the item is an operating activity (OA), aninvesting activity (IA), a financing activity (FA) and net changein cash (NC). The letters NA indicate that an element is notaffected by the event. (Enter any decreases to accountbalances and cash outflows with a minus sign.)
P 17-16 (FairValue Hedge Interest Rate Swap) On December 31, 2014, MercantileCorp. had a
$10,000,000 8.00% fixed-rate note outstanding, payable in 2 years. Itdecides to enter into a
2-year swap withChicago First Bank to convert the fixed-rate debt to variable-ratedebt. The terms of
the swap indicate thatMercantile will receive interest at a fixed rate of 8.00% and will pay a
variable rate equal to the6-month LIBOR rate, based on the $10,000,000 amount. The
LIBOR rate on December 31,2014, is 7.00% . The LIBOR rate will be reset every 6
months and will be used todetermine the variable rate to be paid for the following 6-monthperiod.
Mercantile Corp. designates the swap as a fair value hedge. Assumethat the hedging relationship
meets all the conditions necessary for hedge accounting. The6-month LIBOR rate and the swap and debt
fair values are as follows.
Date 6-Month LIBOR Rate Swap Fair Value Debt Fair Value
December 31, 2014 7.00% - $10,000,000
June 30, 2015 7.50% ($200,000) $9,800,000
December 31, 2015 6.00% $60,000 $10,060,000
Instructions:
(a)(1) Present thejournal entries to record the entry, if any, swap on December 31,2014.
Enter text answeras appropriate.
(a)(2) Present thejournal entries to record the semiannual debt interest payment onJune 30, 2015.
Jun 30, 15 Account title Amount
Account title Amount
(a)(3) Present thejournal entries to record the settlement of the semiannual swapamount receivables
at 8.00% less amount payable atLIBOR, 7.00%
Jun 30, 15 Account title Amount
Account title Amount
Interest Received (Paid)
Text title Amount
Text title Amount
Text title Amount
(a)(4) Present thejournal entries to record the change in the fair value of the debton June 30, 2015.
Jun 30, 15 Account title Amount
Account title Amount
(a)(5) Present thejournal entries to record the change in the fair value of the swapat June 30, 2015.
Jun 30, 15 Account title Amount
Account title Amount
(b)Indicate the amount(s) reported on the balance sheet and incomestatement related to the debt
and swap on December 31, 2014.
Balance Sheet
Liabilities
Account title Amount
Income Statement Amount
(c)Indicate the amount(s) reported on the balance sheet and incomestatement related to the debt
and swap on June 30, 2015.
Balance Sheet
Liabilities
Account title Amount
Account title Amount
Income Statement
Account title Amount
Account title Amount
Account title Amount
Total Formula
(d)Indicate the amount(s) reported on the balance sheet and incomestatement related to the debt
and swap on December 31, 2015.
Balance Sheet
Assets
Account title Amount
Liabilities
Account title Amount
Income Statement
Account title
First six months Amount See (c), above.
Second six months Amount See below.
Account title Amount
Account title Amount
Total Formula
Text title Amount
Text title Amount
Cash settlement Formula
Interest expense unadjusted
Text title Amount
Text title Amount
Formula

Effect of depreciation on the accounting equation and financialstatements

[The following information applies to the questionsdisplayed below.]

The following eventsapply to The Ice Cream Parlor for the 2014 fiscal year:
1. The company started when itacquired $16,000 cash from the issue of common stock.
2. Purchased a new ice creammachine that cost $16,800 cash.
3. Earned $20,300 in cashrevenue.
4. Paid $13,000 cash for salariesexpense.
5. Paid $3,500 cash for operatingexpenses.

6.

Adjusted the records to reflect the use of the ice creammachine. The machine, purchased on January 1, 2014, has an expecteduseful life of five years and an estimated salvage value of $2,600.Use straight-line depreciation. The adjusting entry was made as ofDecember 31, 2014.

3 Part a

Required
a.

Record the above transactions in a horizontal statements modellike the following one. In the Cash Flow column, indicate whetherthe item is an operating activity (OA), an investing activity (IA),a financing activity (FA) and net change in cash (NC). The lettersNA indicate that an element is not affected by the event.(Enter any decreases to account balances and cash outflowswith a minus sign.)

THE ICE CREAM PARLOR

HORIZONTAL STATEMENTS MODEL

CASH+EQUIPMENT-ACCUMULATED=COMMON+RETAINED REVENUE-EXPENSE=NETSTATEMENT

DEPRECIATION STOCK EARNINGS INCOME OFCASH FLOWS

1

2

3

4

5

6

4 Part b

b.

What amount of depreciation expense would The Ice Cream Parlorreport on the 2014 income statement?

DEPRECIATION EXPENSE ( )

5 Part c

c.

What amount of accumulated depreciation would The Ice CreamParlor report on the December 31, 2014, balance sheet? ACCUMULATEDDEPRECIATION ( )

6 Part d

d. Would the cash flow fromoperating activities be affected by depreciation in 2014?
Yes ( )
No ( )

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