Effect of accrued interest on financial statements
Magic Enterprises borrowed $18,000 from the local bank on July 1, 2010, when the company was started. The note had an 8 percent annual interest rate and a one-year term to maturity. Magic Enterprises recognized $42,500 of revenue on account in 2010 and $45,000 of revenue on account in 2011. Cash collections from accounts receivable were $36,000 in 2010 and $35,000 in 2011. Magic Enterprises paid $24,000 of salaries expense in 2010 and $28,000 of salaries expense in 2011. Repaid loan and interest at maturity date.
Required
a. Organize the information in accounts under an accounting equation.
b. What amount of net cash flow from operating activities would Magic report on the 2010 cash flow statement?
c. What amount of interest expense would Magic report on the 2010 income statement?
d. What amount of total liabilities would Magic report on the December 31, 2010, balance sheet?
e. What amount of retained earnings would Magic report on the December 31, 2010, balance sheet?
f. What amount of cash flow from financing activities would Magic report on the 2010 statement of cash flows?
g. What amount of interest expense would Magic report on the 2011 income statement?
h. What amount of cash flows from operating activities would Magic report on the 2011 cash flow statement?
i. What amount of total assets would Magic report on the December 31, 2011, balance sheet?