Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as:

A) Debit Equipment, credit Notes Payable.
B) Debit Notes Payable, credit Equipment.
C) Debit Cash, credit Notes Payable.
D) Debit Equipment, credit Cash..

The correct answer is letter "A": Debit Equipment, credit Notes Payable.

Explanation:

Notes Payable are debt instruments a company issues to make purchases on account.  The face value of the debt is recorded but, in addition, interest expenses due to the credit purchase must be registered. If the note payable has a repayment schedule shorter than one (1) year, the notes payable represent a current liability. If longer than 1 year, it represents a long-term liability.

Recording notes payable typically require debiting a cash account and crediting notes payable. While purchasing equipment which is typically a long-term liability, the equipment account is debited and the notes payable account is credited.