Question

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

Answer 1

To record the issuance of a $200,000 promissory note for a 10-year loan at 7% interest with semiannual payments, debit a loan or notes payable account and credit a cash account for the full amount of the loan.

Step-by-step explanation:

When recording the issuance of a promissory note for a loan, a journal entry is made to reflect this transaction. If on October 1 you borrow $200,000 to build a new facility with a 10-year term and a 7% interest rate, with semiannual payments due each April and October, the journal entry to record the issuance would involve debiting a loan or notes payable account and crediting a cash account for the amount of $200,000. Interest is not recorded at the time of the loan issuance but will be recorded when it is incurred and payments are due.