Final answer:
The correct answer to the accounting transaction question is Option 1: Debit cash, $10,000; credit notes payable, $10,000. Banks record loans as assets, while deposits increase both the deposits and reserves in the recipient bank. When companies issue bonds, they must make interest payments or face legal consequences; however, there's no full guarantee for bondholders to recover their loans.
Step-by-step explanation:
The student's question appears to be related to accounting transactions involving the issuance of a note payable. In the provided scenario, Carter Company signed a 120-day, 10% interest note for $10,000. The correct entry for initially recording this note in the company's books would be to debit cash for $10,000 because the company is receiving cash, and credit notes payable for $10,000 because this creates a liability for the company. So, the correct answer to the question is Option 1: Debit cash, $10,000; credit notes payable, $10,000. Similarly, when Singleton Bank lends $9 million to Hank's Auto Supply, it records the loan as an asset on its balance sheet because it expects to receive interest income. When Hank's Auto Supply deposits the loan amount, First National's deposits and reserves increase by the same amount. However, First National is required to keep 10% of the deposits as required reserves and can lend out the rest.
If a company issues bonds, it must make the promised interest payments or risk being taken to court by bondholders. There is no guarantee that the firm will have sufficient assets to pay off the bonds, and bondholders may only recoup a portion of their investment. Regarding interest calculations, if you have a loan with an interest charge equal to the payment, such as the $100 interest on a $20,000 loan, paying less than the interest amount would result in the debt increasing, as the principal would remain unchanged.