4. What is the effect of the following transaction on the basic accounting equation?
Paid interest on the loan from the bank, $120, cash.
1) Liabilities decrease, owners' equity increases.
2) No entry, no effect.
3) Liabilities increase, owners' equity decreases.
4) Assets increase, assets decrease.
5) Assets increase, liabilities increase.
6) Assets decrease, liabilities decrease.
7) Assets increase, owners' equity increases.
8) Assets decrease, owners' equity decreases
The main source of cash is financing activities, with a cash inflow of $24,300. This appears to be a negetive trend. The cashflow from operating activites was $20,220, which was enoguh to finance the purchase of the intagibles for $14,340. There appears to be no need to have a cash inflow from financing activites, from the loan and the additional cash from the owners. In fact, it appears that the cash inflow from the owners was immediately paid out as dividens. it is possible that the business has plans to expand in the future, which is why they have an inflow from financing activites. However, from the statments, it is not clear why the business felt the need for addtional funds from the owners and the bank unless it was to pay dividens, which would not be a good use of funds at this time 10th Edition•ISBN: 9781337902571 (1 more)Eugene F. Brigham, Joel Houston 14th Edition•ISBN: 9780470587232 (5 more)Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield 23rd Edition•ISBN: 9780538760683Carl S Warren, James M Reeve, Jonathan E. Duchac 4th Edition•ISBN: 9780134202815Jonathan B. Berk, Peter DeMarzo