Reference no: EM132551618
Irwin Company obtained a five-year, €100,000 bank loan at the end of year x0. The principal had to be repaid in equal installments every December 31st starting in x1. The yearly interest rate is 4% and is also paid every December 31st. Please answer the following two questions:
Problem 1: What is the impact of this transaction on the profit and loss account of the year x1?
Option 1: There is no impact on the profit and loss account in x1.
Option 2: The profit and loss account decreases by €20,000.
Option 3: The profit and loss account decreases by €24,000.
Option 4: The profit and loss account decreases by €4,000.
Problem 2: Which of the following statements regarding year x1 is correct?
Option 1: The company recorded €20,000 as interest expense.
Option 2: The change in cash due to this loan was -€24,000.
Option 3: The ending balance of the bank loan liability at the end of year x1 was €76,000.
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