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30 June, 18:21

On November 1, Year 1 Cove Company borrowed $7,000 cash from Shelter Company. The one-year note carried a 7% rate of interest.

Which of the following shows how the loan will affect Cove's financial statements on November 1, Year 1?

A) Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. - Exp. = Net Inc. (7,000) IA

/NA / NA / NA / NA / NA / NA

B) Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. - Exp. = Net Inc. (7,000) FA

/NA / NA / NA / NA / NA / NA

C) Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. - Exp. = Net Inc. 7,000 FA

/7000 / 7000 / NA / NA / NA / NA

D) Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. - Exp. = Net Inc. (7,000) IA / (7000) / (7000) / NA / NA / NA / NA

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Answers (1)
  1. 30 June, 21:42
    0
    Assets + 7,000

    Liabilities + 7,000

    Net income no effect

    Cash flow statement:

    +7,000 from financing activities

    Explanation:

    The loan will not generate no expense as the note has not accrued interest yet.

    Then, cash from financing activities will increase by 7,000 as the firm received cash

    Finally, the blaance sheet will disclosure the increasein assets (cash) and the increasein liabilities (note payable)
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