The following transactions apply to Pecan Co. for 2018, its first year of operations:1. Received $100,000 cash in exchange for issuance of common stock.2. Secured a $300,000 five-year installment loan from State Bank. The interest rate is 5 percent and annual payments are $69,292.3. Purchased land for $100,0004. Provided services for $260,000.5. Paid other operating expenses of $150,000.6. Paid the annual payment on the loan. Round answers to nearest whole dollar. Required:a. Organize the transaction data in accounts under an accounting equation. b. Prepare an income statement and balance sheet for 2018.c. What is the interest expense for 2019? 2020?

Pecan Co.

a. Accounting equation: Assets = Liabilities + Equity

Assets: Cash ($100,000 + 300,000 - 100,000 - 150,000 - 69,292) + Land ($100,000) + Accounts Receivable ($260,000) = Liabilities: Bank Loan ($245,708) + Equity: Common stock ($100,000) + Retained Earnings ($260,000 - 150,000 - 15,000)

b1: Income Statement

Service Revenue       $260,000

Operating expenses    150,000

Interest expense            15,000

Net income                  $95,000

Balance Sheet

Cash                                 $80,708

Accounts Receivable      260,000

Land                                 100,000

Total assets                  $440,708

Bank Loan                    $245,708

Common stock               100,000

Net income                      95,000

Total liabilities+equity $440,708

b2. The interest expense for 2019 is $15,000 ($300,000 * 5%)

The interest expense for 2020 is $12,285.40 ($300,000 +15,000 - 69,292) * 5%.

Explanation:

a) Data and Calculations:

Cash $100,000 + 300,000 - 100,000 - 150,000 - 69,292 = $80,708

Accounts Receivable $260,000

Land $100,000

Common stock $100,000

Bank Loan $300,000 + 15,000 - 69,292 = $245,708

Service Revenue $260,000

Operating expenses $150,000

Amortization Schedule, using an online financial calculator:

Beginning  Interest              PrincipalEnding

           Balance                                                       Balance

1$300,000.00$15,000.00$54,292.44$245,707.56

2$245,707.56$12,285.38$57,007.06$188,700.50

3$188,700.50$9,435.02$59,857.41$128,843.08

4$128,843.08$6,442.15$62,850.29$65,992.80

5$65,992.80$3,299.64$65,992.80$0.0

a

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