indicate whether each of the following is true or false. perez company borrowed money from its bank in july…

indicate whether each of the following is true or false. perez company borrowed money from its bank in july year 1. the accrual of interest on the loan at the end of year 1:\na) reduces cash flows.\nb) involves recognition of interest expense.\nc) does not affect income for year 1.\nd) involves recognition of a liability.\ne) records a cash payment for interest.

indicate whether each of the following is true or false. perez company borrowed money from its bank in july year 1. the accrual of interest on the loan at the end of year 1:\na) reduces cash flows.\nb) involves recognition of interest expense.\nc) does not affect income for year 1.\nd) involves recognition of a liability.\ne) records a cash payment for interest.

Answer

Brief Explanations:

a) Accruing interest doesn't involve cash movement, so it doesn't reduce cash - flows. b) Interest accrual requires recognizing interest expense. c) Interest expense reduces net income, so it affects Year 1 income. d) When interest is accrued, a liability (interest payable) is recognized. e) Accrual is non - cash; cash payment is a different transaction.

Answer:

a) False b) True c) False d) True e) False