Cost of the asset$100,000
Life of the asset 5 years
Depreciation rate20%
Capital cost allowance rate 50%
Residual value of the asset nil
Income tax rate 50%
-An entrepreneur repays a $10,000 bank loan. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Current assets increase and current liabilities decrease.
C) Current assets decrease and expenses decrease.
D) Current assets decrease and current liabilities decrease.

Question

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur repays a $10,000 bank loan. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Current assets increase and current liabilities decrease.
C) Current assets decrease and expenses decrease.
D) Current assets decrease and current liabilities decrease.

Quizplus · Accepted Answer

Repaying a bank loan decreases current assets (cash) and decreases current liabilities (the loan balance), with no effect on expenses.

Cost of the Asset$100,000