Essay Questions
87. Indicate whether each of the following is true or false. Peyton Company borrowed money from its bank in July 2011. The accrual of interest on the loan at the end of 2011
_____ a) does not affect cash flows.
_____ b) involves recognition of interest expense.
_____ c) decreases income for 2011.
_____ d) involves recognition of a liability.
_____ e) records a cash payment for interest.
88. Indicate whether each of the following statements is true or false.
_____ a) An eight month, 6% note for $20,000 will require the issuer to pay $1,200 in interest.
_____ b) Interest expense is not considered an operating expense on the income statement.
_____ c) Payment of interest is considered an operating activity on the statement of cash flows.
_____ d) Payment of interest on a one-year note due on March 1 will include a reduction in liabilities.
_____ e) The adjusting entry to recognize interest expense is an asset use transaction.