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 Interest Payable $14,000.

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of the promissory note should debit Cash for the amount of the loan ($200,000) and credit Notes Payable for the same amount. The interest expense and payable will be recorded as the interest is accrued and paid semiannually. Therefore, options A and D are incorrect as they attempt to record the interest expense and payable at the time of issuance. Option B is also incorrect as it only records the payment of interest and not the issuance of the loan.

On October 1,you Borrow $200,000 in Order to Build a New