In Transactions Involving the Borrowing or Lending of Money, as Interest

question 56

Multiple Choice

In transactions involving the borrowing or lending of money, as interest is paid, the balance in the liability account of the borrower

• A)decreases.
• B)increases.
• C)remains unchanged.
• D)is transferred to interest income

Identify the normal balances of different account types.

Recognize the steps involved in recording business transactions.

Analyze changes in owner's capital.

Understand the basic concepts of owner's equity and its computation.

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Definitions:

FICA Tax

Federal Insurance Contributions Act tax, which is a United States federal payroll tax imposed on both employees and employers to fund Social Security and Medicare.

Federal Income Tax

A tax levied by the U.S. federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Medical Insurance

An insurance policy that covers the cost of medical and surgical treatments for the policyholder.

FICA Tax

Federal Insurance Contributions Act tax; a U.S. payroll tax funding Social Security and Medicare, paid by both employees and employers.