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. Enter only one letter for each element. You do not need to enter amounts.Increase = IDecrease = DNo Effect = NOn 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.AssetsLiabilitiesEquityRevenuesExpensesNetIncomeCash Flow? ?????
What will be an ideal response?
(I) (N) (I) (I) (N) (I) (I)
Collecting the note on March 1 increases assets (cash) by the amount of the principal, plus all interest, decreases (interest receivable) by the amount of interest that had been accrued at the end of Year 1, and increases revenue (interest revenue) by the amount of interest earned in Year 2, which increases net income and equity. 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.
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