What should be recorded to account for the repayment of Tax Anticipation Notes and interest?

The correct entry for the repayment of Tax Anticipation Notes and interest should accurately reflect the decrease in the liability and the expenditure incurred for the interest payment.

In this case, the debit to Tax Anticipation Notes Payable indicates that the outstanding liability for the notes is being reduced by $200,000, representing the principal repayment. The additional debit to Expenditures Control for $5,000 accounts for the interest expense, which is treated as an expenditure in governmental accounting.

On the credit side, the credit to Cash for the total amount of $205,000 reflects the outflow of funds from the governmental entity's cash account, signifying that cash is being used to settle both the principal and the accrued interest.

This entry aligns with the double-entry accounting principles, where every debit has a corresponding credit. The debits indicate an increase in expenses (reflecting the expenditure incurred) and a reduction of the liability (the notes payable), while the credit reflects a decrease in cash, thereby accurately portraying the financial effects of the repayment transaction.

In summary, the choice correctly depicts the necessary accounting entries to ensure that both the liability for the tax anticipation notes and the interest expenditure are properly recorded in the financial statements of the government entity