Problem:
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