Question

On July 1, 2019, Goode Company borrowed $150,000. The company signed a note payable with interest at 8 percent per year. The note and interest are due on December 31, 2019. On December 31, 2019, Goode paid $156,000 to settle the debt in full. Assuming no accruals for interest have been made during the year, transaction analysis of the $156,000 cash payment on December 31, 2019 should reflect which of the following?a) A decrease in stockholders' equity of $150,000, a decrease in liabilities of $6,000, and a decrease in assets of $156,000.b) A decrease in assets of $150,000, a decrease in stockholders' equity of $6,000, and a decrease in liabilities of $156,000.c) A decrease in liabilities of $150,000, a decrease in stockholders' equity of $6,000, and a decrease in assets of $156,000.d) A decrease in assets of $156,000 and a decrease in liabilities of $156,000.

Answer 1

Answer:

C. decrease in liabilities of $150,000, a decrease in stockholders' equity of $6,000, and a decrease in assets of $156,000

Explanation:

Calculation for what cash payment on December 31, 2019 should reflect

Dec-31

Dr Note payable $150,000 (Decrease liability)

Dr Interest expense 6,000

( 150,000*8%*1/2) (Decrease stockholders equity)

Cr Cash $156,000 (Decrease assets)

($150,000+$6,000)

Therefore cash payment on December 31, 2019 should reflect decrease in liabilities of $150,000, a decrease in stockholders' equity of $6,000, and a decrease in assets of $156,000.