On October 1, you borrow $200,000 in order to build a new facility. The loan is for 10 years, at 7% interest, and semiannual interest payments are due each April and October. The journal entry to record the issuance of the promissory note should:
A) debit Notes Payable for $200,000, debit Interest Expense for $14,000, credit Cash for $200,000, and credit Interest Payable for $14,000.
B) debit Accrued Interest for $14,000 and credit Cash for $14,000.
C) debit Cash for $200,000 and credit Notes Payable for $200,000.
D) debit Cash for $200,000, debit Interest Expense for $14,000, credit Notes Payable for $200,000, and credit

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of the promissory note should debit Cash for $200,000 and credit Notes Payable for $200,000. The interest expense and interest payable will be recorded when the semiannual interest payments are made. Option A incorrectly records the interest expense and interest payable upfront. Option B only records the interest payable and doesn't account for the Notes Payable. Option D incorrectly records the interest expense upfront.

On October 1, You Borrow $200,000 in Order to Build