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On March 1, 2014, Peppers Deli loaned $20,000 to Simms Supply for one year at 8 percent ...

Question:

On March 1, 2014, Peppers Deli loaned $20,000 to Simms Supply for one year at 8 percent 
interest.
Answer the following questions.
a What is Peppers interest income for 2014? (Do not round intermediate calculations and round 
your final answer to nearest whole dollar amount.) INTEREST INCOME ( )
b What is Peppers total amount of receivables at December 31, 2014? (Do not round intermediate 
calculations and round your final answer to nearest whole dollar amount.)
TOTAL RECEIVABLES ( )
c What amounts will be reported on Peppers 2014 statement of cash flows? (Enter cash outflows 
as negative amounts.)

Operating activities inflow or ______________

Operating activities outflow or ________________

Investing activities inflow or _________________

Investing activities outflow or _________________

Financing activities inflow or ________________

Financing activities outflow or ________________

d What is Peppers interest income for 2015? (Do not round intermediate calculations and round 
your final answer to nearest whole dollar amount.) INTEREST INCOME ( )
e What is the total amount of cash that Peppers will collect in 2015 from Simms Supply? TOTAL CASH ( ) 
g What is the total amount of interest Peppers Deli earned from the loan to Simms Supply? 
TOTAL INTEREST EARNED ( )

Interest:

The additional amount charged on the borrowed or due amount is known as interest. Interest is charged by borrower for providing the money to use by another party. It is an income for borrower and expense for borrowee.

Answer and Explanation:

a. Calculation of interest income for 2014:

{eq}\begin{align*}\rm\text{Interest}&=\rm\text{Loan amount}\times\rm\text{Interest rate}\times\rm\text{Duration}\\&=\$20,000\times8\%\times\dfrac{1}{12}\\&=\$133\end{align {/eq}

b. Calculation of amount receivable:

{eq}\begin{align*}\rm\text{Amount receivable}&=\rm\text{Loan amount}+\rm\text{Interest}\\&=\$20,000+\$133\\&=\$20,133\end{align*} {/eq}

c. The loan amount of $20,000 is reported in cash flow statement under investing activity as cash outflow

d. Calculation of interest income for 2015:

{eq}\begin{align*}\rm\text{Interest}&=\rm\text{Loan amount}\times\rm\text{Interest rate}\times\rm\text{Duration}\\&=\$20,000\times8\%\times\dfrac{2}{12}\\&=\$267\end{align*} {/eq}

e. Calculation of total amount cash collected in 2015:

{eq}\begin{align*}\rm\text{Cash collected}&=\rm\text{Loan amount}+\rm\text{Interest 2014}+\rm\text{Interest 2015}\\&=\$20,000+\$133+\$267\\&=\$20,400\end{align*} {/eq}

f. Calculation of total amount of interest earned:

{eq}\begin{align*}\rm\text{Interest}&=\rm\text{Loan amount}\times\rm\text{Interest rate}\\&=\$20,000\times8\%\\&=\$1,600\end{align*} {/eq}


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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