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. Enter only one letter for each element.Increase = IDecrease = DNo Effect = NOn April 1, Year 2, Jenkins Company repaid a $20,000, one-year, 6% note and interest to Community Bank. Interest on the note had been accrued on December 31, Year 1.AssetsLiabilitiesEquityRevenuesExpensesNetIncomeCash Flow? ?????
What will be an ideal response?
(D) (D) (D) (N) (I) (D) (D)
Repaying the note and interest decreases assets (cash), decreases liabilities (notes payable and interest payable), and increases expenses (for the Year 2 interest expense), which decreases net income and equity. The principle is reported as a cash outflow for financing activities and the interest is reported as a cash outflow for operating activities.
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