A company paid $5000 cash to its bank. The payment was for $4000 of principal and $1000 of interest incurred this period. The loan had been taken out to finance the construction of a new piece of production equipment.

What is the correct journal entry?

Dr. Work in Process 1000 Dr. Notes Payable 4000 Cr. Cash 5000

Dr. Work in Process 5000 Cr. Cash 5000

Dr. Equipment 5000 Cr. Cash 5000

Dr. Equipment 1000 Dr. Notes Payable 4000 Cr. Cash 5000

Dr. Interest Expense 1000 Dr. Notes Payable 4000 Cr. Cash 5000