Question

1. On December 31, 2016 IJK Incorporated rendered services in exchange for a 7%, 8-year promissory note having a face value of $45,000. Interest was to be paid annually. This customer's normal borrowing rate is 4% for similar loans.

   What is the impact on total stockholders equity of the entire transaction over the life of the note?

   		None of the other answer choices is correct.
   		70,200
   		25,200
   		16,111
   		45,000
   		54,089

Answer 1

The correct answer is "None of the other answer choices is correct".

Supporting explanations:

The accounting equation states that Total Assets equal to the Total Liabilities and Total Shareholders' Equity.

Due to this exchange for the note, the notes payable which is a liability increases and on the other side, Cash which is one of the assets also increases because cash will be received from the exchange of the note and note which is a liability that is also increases so liabilities increase but there is no impact on the stockholders' equity due to this exchange of the note because there is no issue of common or preferred stock or no declaration or payment of dividends etc.

Therefore, none of the answers given are correct.