Question

On January 1, 2020, Randal Inc. issued a 5% note payable to First Bank for $80,000 with 10 equal annual payments (principal plus interest) with the first payment due December 31, 2020. Indicate the net impact on the financing activities section of the statement of cash flows for 2020.

Select one:

a. Net cash inflow of $73,640

b. Net cash outflow of $10,360

c. Net cash inflow of $69,640

d. Net cash inflow of $76,000

Answer 1

Step 1: Calculation of annual payment
	Annual Payment = [P x R x (1+R)^N]/[(1+R)^N-1]
	Where,
	P= Loan Amount
	R= Interest rate per period
	N= Number of periods
	= [ $80000x0.05 x (1+0.05)^10]/[(1+0.05)^10 -1]
	= [ $4000( 1.05 )^10] / [(1.05 )^10 -1
	=$10360
Step 2 :	Calculation of net cash flow
	Cash Inflow	$       80,000
	Less:
	Cash Outflow	$       10,360
	Net Cash Inflow	$       69,640
	Correct Option : c. Net cash inflow of $69,640