Question

A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the following is the correct journal entry to record this transaction?
A. Debit short-term debt $40,000; debit retained earnings $10,000; credit cash $50,000
B. Debit short-term debt $50,000; credit cash $50,000
C. Debit cash $50,000; credit long-term debt $50,000
D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000

Answer 1

Answer:

D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000

Explanation:

The journal entry for the given transaction is shown below:

Cash Dr $50,000

   To Short term debt $10,000

   To Long term debt $40,000

(Being the raised of loan is recorded)

For recording this we debited the cash as it increased the assets and credited the short term debt and long term debt as it also increased the liabilities

hence, the correct option is D.