Question

Palmer Corporation borrows $40,000 cash by signing a note with the bank. Which of the following statements correctly shows the effect of this transaction on the accounting equation? Multiple Choice

A. Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged
B.Assets will increase by $40,000, liabilities will decrease by $40,000, and stockholders' equity will remain unchanged
C. Assets will increase by $40,000, liabilities will remain unchanged, and stockholders' equity will increase by $40,000
D. Assets will increase by $40,000, liabilities will remain unchanged, and stockholders' equity will decrease by $40,000

Answer 1

Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Step-by-step explanation:

A. Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged

Answer 2

A. Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged

Cash is an asset account. As we receive cash when signing the promissory note, cash account increase therefore, assets increase by $40,000.

The note with the bank is a debt to the company. The comany assumes the obligation to pay it back. It creates a liablity for the company. Liabilities increase by $40,000.