[hermionespell]

Anyone knows the entry on long term bank loan amounting to 4,000,000.00 and with interest of 866,334.80 in 5 years. Monthly amortization amounting to 81,105.58. What is the entry upon receipt of loan proceeds and the monthly amortization? How to treat the interest expense that is so material in amount?

[pready]

To record the loan:
Debit Notes Payable for the amount of the loan.

To record the interest:
Debit Interest Expense for the amount of interest
Credit Interest Payable for the amount (if to pay later) or Cash for the amount (if paid)

If the interest is to be paid later, then the entry to record the payment is:
Interest Expense for the amount to get your debits and Credits equal
Debit Interest Payable for the amount being paid that was previously recorded
Credit Cash for the amount of payment
This would occur if you recognized interest in one accouting period and paid in anther period. For example at Oct 31 you recorded $500 interest, which is:
Debit Interest Expense for $500
Credit Interest Payable for $500
But you are paying interest on Dec 31 of $800 your journal entry to record the payment will be:
Debit Interest Expense for $300
Debit Interest Payable for $500
Credit Cash for $800
Your total interest expense will be $800 of which $500 will be in one period and $300 will be in the next period.

[hermionespell]

Thank pready.

My idea is this for the above question:
Upon the receipt of loan proceeds:
OR
CIB 4,000.000.00 CIB 4,000.000.00
Notes Payable 4,000,000.00 Notes Payable 4,000,000.00
Interest Expenses 866,334.80
Accrued Interest Payable 866,334.80

OR
To record the payment of monthly amortization:

Notes Payable 81,105.58 Notes Payable 53,927.50
CIB 81,105.58 Interest Expense 27,178.08
CIB 81,105.58
Adjustment:
Accrued Interest Payable 27,178.08
Notes Payable

My problem with entry above of recognizing the above interest
Expense of 866,334.80 upon the receipt of loan proceeds is
That the overstatement of interest expense. Now I have adjustment
At the end of the year on which I'm NOT SURE of:

Retained Earning XXX
Interest Expense xxxx

While on the other case on the time of payment of monthly amortization only the recognition of interest expense my concern is the no record of accued interest payable. Please help me to enlightened. Thanks.