On October 1,you borrow $200,000 for 10 years at 7% interest in order to build a new facility.In April and again in October of the following year,you pay half the annual interest to your creditors.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 only include a debit to Notes Payable for $200,000 and a credit to Cash for $200,000, as no interest has been paid yet. The interest expense and interest payable will be recorded when payments are made to the creditors in April and October of the following year. Option A and D include entries for interest expense and interest payable before they have been paid, which is incorrect. Option B only includes an entry for accrued interest, which is not necessary at the time of issuance.

On October 1,you Borrow $200,000 for 10 Years at 7