Company A has the following information excerpted from its financial statements: Suppose the company has only two liability accounts as of Dec. 31, Year 2: Accounts Payable and Loan Payable. Which of the following statements is correct?

Correct answer. On Dec. 31, Year 2, the ending balance in Loan Payable is 9,240 (Total Liabilities 19,600 – Accounts Payable 10,360). This balance (9,240) = the beginning balance in Year 2 (which is the ending balance in Year 1) + proceeds from loan in Year 2 (2,600) – repayment of loan in Year 2 (3,360). Therefore, the ending balance in Year 1 is 10,000 (9,240 + 3,360 – 2,600).