Question

Issuing a note payable for cash results in a(n) ______. a. increase in liabilities and a decrease in stockholders' equity b. increase in assets and an increase in liabilities c. decrease in assets and an increase in liabilities d. decrease in assets and a decrease liabilities

Answer 1

Answer:

(B) increase in assets and an increase in liabilities

Explanation:

Issuing a note (assumed to be a short term note with a maturity of no more than a year in this case) means a company is borrowing from a market/investor(s).

Accordingly, the journal entry for a note issuance is as follows.

Debit Cash (for the proceeds of the note issuance. This increases assets),

Credit Debt Notes (this increases liabilities).

Thus issuing a note results in an increase in assets and an increase in liabilities.