Mock 1 Q4b Reflator

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September 4, 2018 at 3:42 pm #471347
richardscully
Participant
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Dear Sir
The answer book in my opinion fails to show this correctly. The 9% subordinated loan requires principle to be paid with the interest. The answer shows the interest then retained earnings of 73. Should not the 39 of the principle on the 300k come off that retained earnings and therefore that amount is not added to equity??
September 5, 2018 at 6:50 am #471494
John Moffat
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Repayment of a loan does not reduce profits (and therefore retained earnings) – it is only payment of interest that reduces profits.
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