Final answer:
The correct entry Jasper should make to record the cash loan to Clayborn Co. is to debit Notes Receivable for $84,000 and credit Cash for $84,000. This reflects that the company has an asset (the loan) and a decrease in cash. The loan process described exemplifies how banks record loans as assets, leading to changes in money supply within the banking system.
Step-by-step explanation:
Jasper's entry to record the transaction of making a $84,000, 90-day, 7% cash loan to Clayborn Co. would be to debit Notes Receivable for $84,000 and credit Cash for $84,000. This accounting entry reflects that Jasper's company has provided a loan, which is now an asset (Notes Receivable) because it is expected to be repaid with interest, and consequently, there is a reduction in the company's cash balance by the loan amount. Option C is correct .
Using a banking scenario as an analogy, when Singleton Bank lends $9 million to Hank's Auto Supply, it records this loan on its balance sheet as an asset because it expects to receive interests from the loan. The bank issues Hank's a cashier's check, which Hank deposits into his checking account at First National, resulting in an increase in First National's deposits and reserves. However, First National is required to hold 10% of this deposit as required reserves, while the rest can be loaned out.
This example demonstrates the initial stages of money creation through the banking system. When loans are issued and then deposited into checking accounts, money supply increases, as the deposits become part of the total funds available in the banking system.