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On January 1,Year 1,Carlyle Corporation Issued a 5-Year Term Note

Question 66

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On January 1,Year 1,Carlyle Corporation issued a 5-year term note.The note requires an annual cash payment on December 31 of each year.The payment includes a principal repayment and interest.Indicate whether each of the following statements is true or false.

Premises:

Responses:

The amount of the principal repayment will increase with each succeeding payment.

True

Issuing the note will increase assets and liabilities.

False

Each payment on the note includes a cash flow from operating activities and a cash flow from financing activities.

The first payment on the note will reduce liabilities and assets,but will not affect stockholders' equity.

The second payment on the note will include higher interest expense than did the first payment.

Premises:

The amount of the principal repayment will increase with each succeeding payment.

Issuing the note will increase assets and liabilities.

Each payment on the note includes a cash flow from operating activities and a cash flow from financing activities.

The first payment on the note will reduce liabilities and assets,but will not affect stockholders' equity.

The second payment on the note will include higher interest expense than did the first payment.

Responses:

True

False

Correct Answer:

Premises:

Responses:

The amount of the principal repayment will increase with each succeeding payment.

Issuing the note will increase assets and liabilities.

Each payment on the note includes a cash flow from operating activities and a cash flow from financing activities.

The first payment on the note will reduce liabilities and assets,but will not affect stockholders' equity.

The second payment on the note will include higher interest expense than did the first payment.

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