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    Journal Entries for Borrowed Money

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    The Houston Company borrows $200,000 on August 7 with a year note at 5% interest. Prepare the journal entry to record the proceeds from the note, the accrued interest at 12/31 assuming all the interest is made at year end.

    The Houston Company also has a 10 year long term note at an initial value of $1,000,000, 5% interest/year. The note was written on Jan. 1, 2005. At 12/31/06, assuming that the principal payment of $100,000 is made at 12/31 each year along with 1 year interest, show the journal entries for:
    a. the initial booking of the loan
    b. the interest expense for 2005 and 2006
    c. payment of interest and principal in 2005 and 2006

    Note - interest in 2006 is based on remaining principal, not original principal

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    Solution Summary

    This solution contains journal entries for the first year and second year for the issue of one year note and its payment at maturity. It also discusses the initial issue of the 10-year long-term loan and yearly payment of the principal amount and interest for 2005 and 2006.