Question

Which journal entry reflects the following transaction?:

BOC bought a $300,000 building with $50,000 cash and a mortgage taken from a bank.

a. Dr. Building 300,000
Cr. Mortgage 250,000
Cr. Cash 50,000

b. Dr. Mortgage 250,000
Dr. Cash 50,000
Cr. Building 300,000

c. Dr. Cash 50,000
Cr. Building 300,000

d. Dr. Building 300,000
Cr. Cash 50,000

e. Dr. Building 300,000
Cr. Cash 300,000

Answer 1

The journal entry that reflects the given transaction is option a: Dr. Building 300,000, Cr. Mortgage 250,000, Cr. Cash 50,000.

Step-by-step explanation:

The journal entry that reflects the given transaction is option a:

• Dr. Building 300,000
• Cr. Mortgage 250,000
• Cr. Cash 50,000

In this transaction, Bank of Corp (BOC) bought a $300,000 building with $50,000 cash and a mortgage taken from a bank. The building is debited (increased) by $300,000 to reflect the increase in assets. The mortgage is credited (increased) by $250,000 to reflect the liability to the bank. Finally, the cash is credited (decreased) by $50,000 to reflect the decrease in assets due to the cash payment.

Answer 2

The correct answer is Option A.

Step-by-step explanation:

The concept of double entry says for every debit entry, there must be a corresponding credit entry. This is necessary for the journal entries to balance, that is, the total of the debit balance must always equal the credit balance.

The building purchased by BOC is an asset. So there is need to debit that account to recognize the asset. Since there was an outflow of cash to the tune of $50,000, we need to credit cash while the remaining balance being financed by mortgage will be credited to recognize the liability.