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 dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAOn March 1, Year 2, King Co. collected a note receivable and related interest from Havilland Co. The note had been issued one year earlier. Indicate the effects of this event on the elements of King's financial statements.AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????

Question

What will be an ideal response?

Answer 1

(I) (NA) (I) (I) (NA) (I) (I)
Collecting the note on March 1, Year 2, increases total assets (cash) by the amount collected (that is, the principal plus all interest), decreases total assets (note receivable) by the principal, decreases total assets (interest receivable) by the amount of interest that had been accrued at the end of Year 1, and increases stockholders' equity (retained earnings) by the amount of interest earned in Year 2. It increases revenue (interest revenue) by the amount of interest earned in Year 2, which increases Year 2 net income. The cash received on the principal is reported as a cash inflow from investing activities, and the cash received from interest is reported as a cash inflow from operating activities.