I'm having a disagreement with much of my class including the teacher on this one and I want to be sure how to do it right.

Assume that High Value Corp. took out a loan on Jan. 1 2008, with a price of $2,000. ABC bank gives High Value a promissory note due Jan. 1, 2010. The note includes 8% interest. Assume this note is an interest bearing note. Include any adjusting, closing, and reversing entries.

Not sure how most notes work but in this case all interest will be paid at maturity. I can write out the two different ways if it helps.

The way I see it after the first reversing entry on Jan 1 2009 the Interest Expense account will have a credit of 160 so the adjusting entry on Dec 31 2009 needs to dr interest expense for 320 in order for it to balance at 160 dr so that you get 160 on the income statement in 2009. And there should be no interest expense in 2010. So 2008 and 2009 will each have 160 interest expense on the income statement and none in 2010. The example in my textbook which is a completely different question is similar to this in it's "inflation" of the accounts in order for things to balance properly.

The way I'm being told is that you can't have 320 in the journal entry and therefore the only other way of doing it is to have 160 interest expense on the income statement in 2008 and 2010 but none in 2009.

Any help would be appreciated. Thanks.