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What is the impact of the transaction on the profit account

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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?

There is no impact on the profit and loss account in x1.

The profit and loss account decreases by €20,000.

The profit and loss account decreases by €24,000.

The profit and loss account decreases by €4,000.

Problem 2: Which of the following statements regarding year x1 is correct?

The company recorded €20,000 as interest expense.

The change in cash due to this loan was -€24,000.

The ending balance of the bank loan liability at the end of year x1 was €76,000

Reference no: EM132549938

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