Question

On May 1, Year 1, Benz's Sandwich Shop loaned $22,000 to Mark Henry for one year at 7 percent interest. Required a. What is Benz's interest revenue for Year 1? b. What is Benz's total amount of receivables at December 31, Year 1? c. How will the loan (excluding interest) be reported on Benz's Year 1 statement of cash flows? (choices given in pull-down menu) d. What is Benz's interest revenue for Year 2? e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry? (For all requirements, round your answers to the nearest dollar amount.) a. Interest income b. Receivables c. _____ d. Interest income e. Cash

Answer 1

a. Interest revenue for Year 1:

Interest = Principal × Interest Rate × Time

Interest = $22,000 × 7% × 1 year = $1,540

Therefore, Benz's interest revenue for Year 1 is $1,540.

b. Total amount of receivables at December 31, Year 1:

Since the loan was for one year and it started on May 1, Year 1, the receivables will be outstanding for 7 months (from May to December).

Receivables = Principal + Interest

Receivables = $22,000 + ($22,000 × 7% × (7/12))

Receivables ≈ $22,000 + $900

Receivables ≈ $22,900

Therefore, Benz's total amount of receivables at December 31, Year 1, is approximately $22,900.

c. How the loan will be reported on Benz's Year 1 statement of cash flows:

The loan (excluding interest) will be reported as an operating activity under "Loan receivable issued" or "Loan made" in the investing section of Benz's Year 1 statement of cash flows.

d. Interest revenue for Year 2:

Since the loan is for one year, there will be no interest revenue for Year 2. The loan will be fully repaid by the end of Year 1.

e. Total amount of cash collected in Year 2 from Mark Henry:

Since the loan is fully repaid by the end of Year 1, there will be no cash collected in Year 2 from Mark Henry.