On December 31, Year 1, Rex Corporation borrowed $100,000 from the Third National Bank of Springfield. Rex has five years to pay off the note. On December 31, Year 2, Rex paid$9,000 of interest on the loan and paid off $20,000 of the loan. Rex uses the direct method to prepare its statement of cash flows.
1 What effect will Rex”s loan have on each section of its Year 1 statement of cash flows?
|
| Operating Activities | Investing Activities | Financing Activities |
| A) | no effect | $100,000 decrease | $100,000 increase |
| B) | $100,000 increase | no effect | no effect |
| C) | no effect | $100,000 increase | no effect |
| D) | no effect | no effect | $100,000 increase |
2 What effect will Rex”s interest and loan payments have on each section of its Year 2
statement of cash flows?
|
| Operating Activities | Investing Activities | Financing Activities |
| A) | $9,000 decrease | $20,000 decrease | no effect |
| B) | $9,000 decrease | no effect | $20,000 decrease |
| C) | $29,000 decrease | no effect | no effect |
| D) | no effect | $9,000 decrease | $20,000 decrease |
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