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Borrower company borrowed $100,000 from bank a on august 1 of year 1. The annual interest rate on the loan is 12%. Borrower company will repay the entire loan, both principal and accrued interest, after one year on july 31 of year 2. So, borrower company will pay no cash to bank a between august 1 of year 1 and july 31 of year 2. Which one of the following is included in the single journal entry made when the principal and accrued interest are paid to bank a on july 31 of year 2?.

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The single journal entry made when the principal and accrued interest are paid to bank a on july 31 of year 2 is: CREDIT to Interest Payable for $5,000.

Principal and accrued interest

Based on the information given the journal entry to record the transactions for borrower company is:

Borrower company journal entry

Debit Interest expense $7000

(12%×$100,000×7/12)

Debit Interest payable $5000

(12%×$100,000×5/12)

Debit Note payable $100,000

Credit cash $112,000

($100,000+$7,000+$5,000)

(To record accrued interest)

Inconclusion the single journal entry made when the principal and accrued interest are paid to bank a on july 31 of year 2 is: CREDIT to Interest Payable for $5,000.

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