King Company experienced an accounting event that affected its financial statements as indicated below:

Which of the following accounting events could have caused these effects on King's statements?

Question

King Company experienced an accounting event that affected its financial statements as indicated below:

Which of the following accounting events could have caused these effects on King's statements?

Quizplus · Accepted Answer

Making a payment on an installment loan decreases assets (cash), decreases liabilities (installment notes payable) for the amount of the principal repayment, and decreases stockholders' equity (retained earnings). It increases expenses (interest expense) for the amount of interest expense, which decreases net income. The principal repayment is reported as a cash outflow for financing activities, while the interest portion of the payment is reported as a cash outflow for operating activities.

King Company Experienced an Accounting Event That Affected Its Financial