A sole proprietor obtains a loan of $100,000 from a bank. The purpose of this lo

Question

A sole proprietor obtains a loan of $100,000 from a bank. The purpose of this loan is to pay for operations of the sole proprietorship owned by the sole proprietor. The only debtor on the note is the sole proprietor and is identified on the loan as an individual, not as the owner of the sole proprietorship. The loan proceeds of $100,000 is deposited into the bank account of the sole proprietorship. The sole proprietorship's journal entry will be a. none of the other choices are correct. b. debit cash $100,000, credit notes payable-bank $100,000 c. debit cash $100,000, credit accounts payable $100,000 d. debit cash $100,000, credit notes payable - Owner $100,000 e. debit cash $100,000, credit Owner's Equity $100,000

Explanation / Answer

The correct option should be D. Since the loan is taken on an individual basis by the owner not on a company basis. The debit entry will be cash and credit will be notes payable to owner since it is like an individual loan repayment.

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