Which of the following correctly shows the effects of the December 31, 2014 payment?

Question

Quizplus · Accepted Answer

Carrying value of the note at the beginning of 2014: $2,500 - $453 (the amount of principal reduction in 2013); Interest expense for 2014 = ($2,500 - $453) x 5% = $102; The second annual payment of $578 will decrease assets (cash) by $578. Liabilities (notes payable) will be decreased by the difference between the payment and the interest expense ($578 - $102). The interest expense will decrease net income and equity. The principal portion ($476) of the payment is reported as a cash outflow for financing activities and the interest portion ($102) will be reported as a cash outflow for operating activities.

Which of the Following Correctly Shows the Effects of the December