USA Purchasing a Business with Debt

[taxmaster]

I have a question about the journal entries to make for purchasing a business.

If I am borrowing $100,000 to purchase 100% of a business for $100,000 that has assets worth $50,000, what would the journal entry be? If the answer is #2, would I be able to deduct any of the loan interest under the company? If not, how could I structure the transaction so that the loan interest would be deductible under the company?

#1
DR: Assets $50,000
DR: Goodwill $50,000
CR: Notes Payable $100,000

OR

#2
DR:Assets $50,000
DR:Goodwill $50,000
CR: Common Stock $50,000

 

[Samir]

#2 is wrong because it breaks a fundamental rule in accounting--the sum of all debits and credits in an entry must be zero.

#1 is the correct way, and nothing is stopping you from expensing the interest in the name of the company.

Sample Payment:
DR: Notes Payable $1000 (principle)
DR: Interest Expense $3000 (interest)
CR: Cash/Bank Account/Funding Source $4000 (payment amount)