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On January 1, Year 1, Niagara Corporation arranges a $6,000 line of credit with Centennial Bank. It accepted the bank's offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and repayments are to take place on January 1 of each year.

-Niagara begins its loan transactions with Centennial Bank by borrowing $2,000 on January 1,Year 1.Which of the following shows the effect of this event on the elements of the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, Niagara Corporation arranges a $6,000 line of credit with Centennial Bank. It accepted the bank's offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and repayments are to take place on January 1 of each year.

-Niagara begins its loan transactions with Centennial Bank by borrowing $2,000 on January 1,Year 1.Which of the following shows the effect of this event on the elements of the financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Borrowing against a line of credit will increase assets (cash)and increases liabilities (line of credit liability).It is reported as a cash inflow for financing activities.

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