Fleak Corporation borrows money by issuing a three-year periodic and lump-sum payment note payable with a face value of $300,000 and a face rate of 7 percent that is paid annually. The market rate of interest is 6 percent when Fleak takes this note to the bank.
What will be the cash inflows shown on the budgeted statement of cash flows?
What will be the cash outflows shown on the budgeted statement of cash flows for the first year?
What is the amount of interest expense shown on the budgeted income statement for the first year?
Why is this latter amount different than the cash outflows for the first year?
Fouch Corporation wants to borrow $80,000 and use a noninterest-bearing note with a five-year life. If the market interest rate is 8 percent and the interest is compounded semiannually, what is the face value of the note?
How much interest expense will Fouch Corporation show on its budgeted income statement for the first year of the note’s life?
Describe the cash inflows and outflows Fouch must plan for with this note.
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