a. Benz's Sandwich Shop interest income for Year 1 is equal to $400.
b. Benz's Sandwich Shop total receivables at December 31, Year 1 is equal to $10,400.
c. The loan receivable will be reported on Benz's Sandwich Shop Statement of Cash Flows under operating activities as an outflow of resources in the amount of $10,000.
d. Benz's Sandwich Shop interest income for Year 2 is equal to $200.
e. The total amount of cash that Benz's Sandwich Shop will collect in Year 2 from Mark Henry is $10,600.
f. On Benz's Year 2 Statement of Cash Flows, the loan and interest will be reported under Operating Activities as inflows in the total amount of $10,600.
g. The total amount of interest that Benz's Shop earned on the loan to Mark Henry is $600 ($10,000 x 6%).
Data and Calculations:
Amount of loan = $10,000
Interest rate = 6%
Months for Year 1 = 8 months (12 - 4)
Interest income for Year 1= $400 ($10,000 x 6% x 8/12)
Loan Receivable = $10,000
Interest Receivable = $400
Total receivable for Year 1 = $10,400 ($10,000 + $400)
Interest Income for Year 2 = $200 ($10,000 x 6% x 4/12)
Total Interest Income = $600 ($10,000 x 6%)
Thus, the interest is the income that Benz's receives for lending $10,000 to Mark Henry for a period of one year at 6%.
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