Question

Bostel wanted to expand the size of its warehouse in order to generate more profits. The company decided to purchase the building adjacent to its existing warehouse. The company pays for the building by borrowing from the bank.
The purchase would be recorded as:

A. Debit Cash; credit Notes Payable.
B. Debit Buildings; credit Cash.
C. Debit Buildings; Credit Notes Payable.
D. Debit Cash and Buildings; Credit Notes Payable.

Answer 1

Answer:

C. Debit Buildings; Credit Notes Payable.

Explanation:

The journal entry to record the given transaction is shown below:

Building A/c Dr XXXXX

         To Notes Payable A/c XXXXX

(Being the building is purchased)

Since the building is purchased which increases the value of the asset so the building account is debited and the payment is done by borrowing amount from the bank i.e note payable so this account would be credited