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problem: On July 1, 2007, Leach Company needs exactly 103,200 dollar in cash to pay an existing obligation. Leach has decided to borrow from State Bank, which charges 14 percent interest on loans. The loan will be due in one year. Leach is hesitant, however, whether to ask the bank for A] an interest-bearing loan with interest and principle payable at the end of the year or B] a loan due in one year but with interest deducted in advance.

Suppose that Leach negotiates & signs the one year note with the bank on July 1, 2007.  Also suppose that Leach's accounting year ends December 31. find out the effect on the accounting equation of the issuance of the note & the interest on the note, suppose that

[A]      If interest is paid when the loan is due

[B]      If interest is deducted in advance

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M917748

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