Question

Forest Beach Company experienced an event that had the following effects on its financial statements.

Balance sheet Income Statement Statement of
Assets = Liab. + Equity Rev. − Exp. = Net Inc. Cash Flows
NA = NA + NA NA − NA = NA + IA

Which of the following events could have caused these effects?

a. Accrued interest revenue.
b. Loaned cash to an employee.
c. Collected cash for the principal balance of a note receivable.
d. Borrowed cash from a bank.

Answer 1

Answer:

(C) Collected cash for the principal balance of a note receivable

Explanation:

This is so because paying off principal balance of a note payable will definitely reduce cash asset and ultimately lead to liabilities of note payable. The cash outflow from the payoff of the note payable would be classified as a financing activity, and this way the the income statement is not affected.