California Company borrowed $120,000 from the issuance of a note payable on August 1, Year 1. The note had a 7 percent annual rate of interest and a one-year term to maturity.

Required
a. What amount of interest expense will California recognize for the year ending December 31, Year 1?
b. Show how the recognition of accrued interest expense on December 31, Year 1, affects the accounting equation.
c. What amount of cash will California pay for interest expense in Year 1?
d. What is the amount of interest payable as of December 31, Year 1?
e. What amount of cash will California pay for interest expense in Year 2?
f. What amount of interest expense will California recognize in Year 2?
g. What is the amount of interest payable as of December 31, Year 2?