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:

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

Explanation:

Liabilities decrease by the of the loan's face value of $150,000. Interest expense is $6,000 for the period is also understated, so net income and stockholders' equity understated by this amount. To make the payment of this loan and interest, assets in the form of cash is decreased by $156,000.