Problem 7-31 Accounting for an installment note payable LO 7-5 The following tra
ID: 2803952 • Letter: P
Question
Problem 7-31 Accounting for an installment note payable LO 7-5 The following transactions apply to Pecan Co. for 2018, its first year of operations: 1. Received $100,000 cash in exchange for issuance of common stock. 2. Secured a $300,000 five-year installment loan from State Bank. The interest rate is 5 percent and annual payments are $69,292. 3. Purchased land for $100,000 4. Provided services for $260,000. 5. Paid other operating expenses of $150,000. 6. Paid the annual payment on the loan. Required a. Organize the transaction data in accounts under an accounting equation. b. Prepare an income statement and balance sheet for 2018. c. What is the interest expense for 2019? 2020?Explanation / Answer
a
b. Income statement
Sales = 260000
less: Other operating expenses = 150000
Less:Non operating items:
AnnuaI interest expense[69292- [300000/5] = 9292
Net Income = 100708
Balance sheet
As on December 31, 2018
Assets
Cash 340708
Land 100000
Total Assets 440708
Liabilities
Notes payable 240000
Total Liabilities 240000
Stockholder's equity
Common stock 100000
Retained earnings 100708
Total Stockholder's equity 200708
Total Liabilities and Stockholder's equity 440708
c. 2019 2020
Interest expenses $9292 9292
Assets = Liabilities + Stockholder's equity Event No Cash + Land = Notes payable + Common stock + Retained earnings Account title/ retained earnings 2018 1 100000 + 0 = 0 + 100000 + 0 NA 2 300000 + 0 = 300000 + 0 + 0 NA 3 (100000) + 100000 = 0 + 0 + 0 NA 4 260000 + 0 = 0 + 0 + 260000 service revenue 5 (150000) + 0 = 0 + 0 + (150000) Other operating expenses 6 (69292) + 0 = (60000) + 0 + (9292) Annual interest expense Balance 340708 + 100000 = 240000 + 100000 + 100708