Determining Financial Statement Effects of Adjustments for Interest on Two Notes
Note 1: On April 1, 2011, Warren Corporation received a $30,000, 10 percent note from a customer in settlement of a $30,000 open account receivable. According to the terms, the principal of the note and interest are payable at the end of 12 months. The annual accounting period for Warren ends on December 31, 2011.
Note 2: On August 1, 2011, to meet a cash shortage, Warren Corporation obtained a $30,000, 12 percent loan from a local bank. The principal of the note and interest expense are payable at the end of six months.
Required:
For the relevant transaction dates of each note, indicate the amounts and direction of effects on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, ˆ’ for decrease, and NE for no effect. (Reminder: Assets = Liabilities + Stockholders€™ Equity; Revenues ˆ’ Expenses = Net Income; and Net Income accounts are closed to Retained Earnings, a part of Stockholders€™Equity.)

INCOME STATEMENT BALANCE SHEET Stockholders Equity Net Revenues Expenses Income Assets Date Liabilities Note 1 April 1, 2011 December 31, 2011 March 31, 2012 Note 2 August 1, 2011 December 31, 2011 January 31, 2012