3-Statement Change: Take Out a $100 Loan

Walk me through what happens across the income statement, cash flow statement, and balance sheet if a company takes out a $100 loan, first at the moment the loan is issued and then over the following year as it accrues interest, with everything else held constant.

1. Task Overview

Task: trace the immediate balance sheet impact of taking out a $100 loan, then the Year 1 income statement, cash flow statement, and balance sheet effects once the loan starts accruing interest.

Step 1: Given Data — Starting Position and Loan Terms

Before modeling the loan, here is the company's starting position and the terms of the new borrowing.

Step 2: Day 0 — Immediate Effect of Taking Out the Loan

On the day the loan is issued, the company receives cash and records a matching liability — nothing flows through the income statement yet.

Using this formula, compute the new Cash and Debt balances immediately after the loan is issued.

Step 3: Year 1 — Interest Expense on the New Loan

Over the following year, the loan accrues interest, which is the first item that actually reaches the income statement.

Using this formula, compute the Year 1 interest expense on the loan.

Step 4: Year 1 — Net Income, Cash Flow, and Balance Sheet Effects

Assume:

• Interest is paid in cash during the year (not accrued or capitalized)
• No principal is repaid during Year 1 — the loan is interest-only
• The tax benefit from the interest deduction is realized in the same period

Using these inputs, compute the after-tax impact on Net Income, Retained Earnings, Cash Flow from Operations, and the ending Cash balance.