Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NA(Note that "Not Affected" means that the event does not affect that element of the financial statements or that the event causes an increase in that element that is offset by a decrease in that same element.) Gilliam Co. repaid a note payable on September 30, Year 1. The 8-month note had been issued on February 1, Year 1. The $20,800 cash payment included a $20,000 repayment of principal and a $800 payment for interest that had not been previously accrued.AssetsLiabilitiesEquityRevenuesExpensesNet IncomeStmt of Cash Flows???????

Question

What will be an ideal response?

Answer 1

(D) (D) (D) (NA) (I) (D) (D)
Because the note's issuance and repayment both occurred within the same year, interest had not been previously accrued. Therefore, the repayment decreases assets (cash) by $20,800, decreases liabilities (notes payable) by $20,000, and decreases stockholders' equity (retained earnings) by $800. It increases expenses (interest expense) by $800, which decreases net income. The repayment of principle is reported as a cash outflow for financing activities and the payment of interest is reported as a cash outflow for operating activities.