Supposed B borrows $100,000 from L and uses it to drill an oil well. B...
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Accounting
Supposed B borrows $100,000 from L and uses it to drill an oil well. B hits a dry hole and loses the entire $100,000 investment. Although B is solvent, L discharges the $40,000 of the debt.
Journal entries to record these events might look like this:
Cash$100,000
Debt payable$100,000
Loss on oil well$100,000
Cash $100,000
Debt payable $40,000
$40,000
1.Under the "Whole Transaction" theory, what account would be credited above for $40,000?
2.Under the "Freeing-of-Assets" theory, what account would be credited above for $40,000?
3.Under the "Loan Proceeds" theory, what account would be credited above for $40,000?
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