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

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.

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  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.

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