Problem 7-26 Effect of accrued interest on financial statements LO 7-1 Munster enterprises issued $1

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Problem 7-26 Effect of accrued interest on financial statements LO 7-1

Munster enterprises issued $10,000 of a common stock when the company started. In addition, Munster borrowed $36,000 from a local bank on July 1, 2017. The note had a 6% annual interest rate and a one-year term to maturity. Munster recognized $72,500 of revenue on account in 2017 and $85,200 of revenue on account in 2018. Cash collections of accounts receivable were $61,300 in 2017 and $71,500 in 2018. Munster paid $39,000 of other operating expenses in 2018 and $45,000 of other operating expenses in 2018. Munster repaid the loan and interest at maturity date.

1. Organize the information in accounts under an accounting equation.

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2. What a amount of net cash flow from operating activities would be reported on the 2017 cash flow statement?

3. What amount of interest expense would be reported on the 2017 income statement?

4. What amount of total liabilities would be reported on the December 31, 2017 balance sheet?

5. What amount of retained earnings would be reported on the December 31, 2017 balance sheet?

6. What amount of cash flow from financing activities would be reported on the 2017 statement of cash flows?

7. What amount of interest expense would be reported on the 2018 income statement?

8. What amount of cash flows from operating activities would be reported on the 2018 cash flow statement?

9. What amount of assets would be reported on the December 31, 2018 balance sheet?

Using the questions above, complete the tables below:

Event

Cash

+

Accounts Receivable

=

Notes Payable

+

Interest Payable

+

Common Stock

+

Retained Earnings

Account Titles/ Retained Earnings

2018

1

2

3

4

5

6

Ending Balance

2019

Beg. Balance

1

2

3

4

5

Ending Balance

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