Question

On February 1, Armstrong, Inc., borrowed $200,000 cash from First Bank under a noncommitted short-term line of credit arrangement and issued a three-month, 12% promissory note. Prepare the appropriate journal entry dated May 1 for the payment of principal and interest made at maturity

Answer 1

cash 200,000 debit

note payable 200,000 credit

note payable 200,000 debit

interest expense 6,000 debit

cash 206,000 credit

Step-by-step explanation:

the interest expense on the note will be calcualte as follows:

principal x rate x time = interest

being rate and time express in the same metric.

200,000 x 12% x 3/12 = 6,000 interest

we will declare this expense and pay the full amount

total cash outlay:

200,000 principal + 6,000interest = 206,000