Question

Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?

a) Decrease in liabilities
b) Increase in assets and liabilities
c) Increase in assets
d) Decrease in assets

Answer 1

Borrowing $20,000 from the bank leads to an increase in assets and liabilities for Rice.

Step-by-step explanation:

The effect of Rice borrowing $20,000 from the bank is an increase in assets and liabilities. The $20,000 borrowed is considered an increase in assets because it represents money that Rice now has available to use. However, it is also an increase in liabilities because Rice is now obligated to pay back the $20,000 to the bank.