Final answer:
The total debt of the government would be $3.9 billion by the end of year 1, $4.9 billion by the end of year 2, and $4.7 billion by the end of year 3 after considering the deficits and surplus. The firm's payments will impact the financial statements based on the timing and nature of the transactions with the present and future value calculations being relevant.
Step-by-step explanation:
To determine what amounts will be reported on the financial statements for year 1, year 2, and year 3, one will need to consider the transactions affecting the statement of financial position, statement of earnings, and the statement of cash flows for each year. In year 1, the government starts off with a total debt of $3.5 billion and runs a deficit of $400 million, bringing the debt to $3.9 billion. For year 2, an additional deficit of $1 billion increases the total debt to $4.9 billion. In year 3, the government has a surplus of $200 million, which decreases the debt to $4.7 billion.
The firm's payments will affect the financial statement depending on when and how they are received and the nature of the transaction. The present value and future value calculations would come into play depending on the stated interest rates and timing of the cash flows. Payments received would be reported as cash inflows in the statement of cash flows and could affect the income statement if they are revenue or gains, and the statement of financial position in terms of increasing cash and shareholders' equity or decreasing debt based on the classification of the proceeds.