Questions: On May 1, Year 1, Benz's Sandwich Shop loaned 12,000 to Mark Henry for one year at 8 percent interest. Required a. What is Benz's interest income for Year 1? b. What is Benz's total amount of receivables at December 31, Year 1? c. How will the loan and interest be reported on Benz's Year 1 statement of cash flows? d. What is Benz's interest income for Year 2? e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry? f. How will the loan and interest be reported on Benz's Year 2 statement of cash flows? g. What is the total amount of interest that Benz's earned on the loan to Mark Henry? Note: For all requirements, round your answers to the nearest dollar amount. a Interest income 640 b Receivables c Cash used in investing activities d Interest income e Cash f Cash provided by operating activities f Cash provided by investing activities g Interest earned

On May 1, Year 1, Benz's Sandwich Shop loaned 12,000 to Mark Henry for one year at 8 percent interest. Required a. What is Benz's interest income for Year 1? b. What is Benz's total amount of receivables at December 31, Year 1? c. How will the loan and interest be reported on Benz's Year 1 statement of cash flows? d. What is Benz's interest income for Year 2? e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry? f. How will the loan and interest be reported on Benz's Year 2 statement of cash flows? g. What is the total amount of interest that Benz's earned on the loan to Mark Henry? Note: For all requirements, round your answers to the nearest dollar amount. a Interest income 640 b Receivables c Cash used in investing activities d Interest income e Cash f Cash provided by operating activities f Cash provided by investing activities g Interest earned
Transcript text: On May 1, Year 1, Benz's Sandwich Shop loaned $12,000 to Mark Henry for one year at 8 percent interest. Required a. What is Benz's interest income for Year 1? b. What is Benz's total amount of receivables at December 31, Year 1? c. How will the loan and interest be reported on Benz's Year 1 statement of cash flows? d. What is Benz's interest income for Year 2? e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry? f. How will the loan and interest be reported on Benz's Year 2 statement of cash flows? g. What is the total amount of interest that Benz's earned on the loan to Mark Henry? Note: For all requirements, round your answers to the nearest dollar amount. a | Interest income | $ 640 b | Receivables | c | Cash used in investing activities | d | Interest income | e | Cash | f | Cash provided by operating activities | f | Cash provided by investing activities | g | Interest earned |
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Solution

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Solution Steps

Solution Approach

a. To calculate Benz's interest income for Year 1, we need to determine the interest accrued from May 1 to December 31. This involves calculating the interest for 8 months using the annual interest rate.

b. To find Benz's total amount of receivables at December 31, Year 1, we add the principal amount of the loan to the interest income calculated for Year 1.

c. The loan and interest will be reported on Benz's Year 1 statement of cash flows as cash used in investing activities, reflecting the outflow of cash for the loan.

Step 1: Calculate Interest Income for Year 1

To find Benz's interest income for Year 1, we use the formula for simple interest:

\[ \text{Interest Income} = P \times r \times t \]

where:

  • \( P = 12000 \) (principal)
  • \( r = 0.08 \) (annual interest rate)
  • \( t = \frac{8}{12} \) (time in years)

Calculating this gives:

\[ \text{Interest Income} = 12000 \times 0.08 \times \frac{8}{12} = 640 \]

Step 2: Calculate Total Receivables at December 31, Year 1

The total amount of receivables at December 31, Year 1 is the sum of the principal and the interest income:

\[ \text{Total Receivables} = P + \text{Interest Income} = 12000 + 640 = 12640 \]

Step 3: Statement of Cash Flows for Year 1

The loan and interest will be reported on Benz's Year 1 statement of cash flows as:

\[ \text{Cash Flows} = \text{Cash used in investing activities} \]

Final Answer

  • a. Interest income for Year 1: \\(\boxed{640}\\)
  • b. Total receivables at December 31, Year 1: \\(\boxed{12640}\\)
  • c. Statement of cash flows: \\(\boxed{\text{Cash used in investing activities}}\\)
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