Reference no: EM132782404

Problem 1: Suppose Mr. Chan lends P500,000 cash to the entity. At the same time, the entity uses part of the money to repay the amount owed to a creditor and holds the remaining amount of P400,000 in the bank account. Which of the following effects on the accounting equation is correct?

a. Assets increase by P400,000 and liabilities increase by P400,000.
b. Assets increase by P500,000 and liabilities increase by P500,000.
c. Assets increase by P400,000 and liabilities decrease by P500,000.
d. Assets decrease by P500,000 and liabilities increase by P400,000.

Problem 2: Refer to Problem 1, the journal entry should be:

Account(s) to be debited            Account(s) to be credited

a. Cash, P500,000                          Accounts payable, P900,000

Bank, P400,000

b. Cash, P100,000                            Loan from Mr. Chan, P500,000

Bank, P400,000

c. Cash, P400,000                                    Bank, P500,000

Accounts payable, P100,000

d. Accounts payable, P100,000                          Loan from Mr. Chan, P500,000

Bank, P400,000