Question

Buffy Inc., borrowed $50,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in two years. Which of the following statements is true with regards to this transaction?
A. The duality of effects does not apply to borrowing transactions.
B. Assets and liabilities increased.
C. Liabilities and stockholders' equity increased.
D. Assets, liabilities, and stockholders' equity increased.

Answer 1

Answer:

Assets and liabilities increased (B)

Explanation:

The duality of effects does not apply to borrowing transactions : No, it does.

Assets and liabilities increased : Funds deposited ( $50,000) will increase cash position of the company (debit ) under current assets .The  loan borrowed will equally  increase the liability (credit) of the company under long-term liability.

This transaction doesn't have any effect on the stockholders value. It is purely a loan transaction.