Final answer:
Affiliated Technologies, Inc.'s borrowing and interest accrual over two months are recorded by debiting Cash and crediting Notes Payable for $700,000 on May 1, and debiting Interest Expense and crediting Interest Payable for $14,000 on June 30.
Step-by-step explanation:
On May 1, Affiliated Technologies, Inc., borrowed $700,000 cash from First Banc Corp under a short-term line of credit and issued a 6-month, 12% promissory note. To record this transaction on May 1, the journal entry would debit Cash and credit Notes Payable for $700,000. On June 30, which is the end of the fiscal period for Affiliated Technologies and two months into the note's term, the company would recognize the interest expense incurred to date. The interest for two months would be calculated as $700,000 × 12% × (2/12), which equals $14,000. The journal entry would debit Interest Expense and credit Interest Payable for $14,000.
If the question is also inquiring about the recording of payment at maturity, it would involve a debit to Notes Payable for the principal amount of $700,000, a debit to Interest Payable for the accumulated interest (total interest for the entire 6 months), and a credit to Cash for the total amount paid. However, since this action occurs after the specified fiscal period ending on June 30, it is not required to record at this stage.