Question

1.On November 1, 2021, Quantum Technology, a geothermal energy supplier, borrowed $16 million cash to fund a geological survey. The loan was made by Nevada BancCorp under a noncommitted short-term line of credit arrangement. Quantum issued a nine-month, 12% promissory note. Interest was payable at maturity. Quantum’s fiscal period is the calendar year.

Required:

1. Prepare the journal entry for the issuance of the note by Quantum Technology.

2. Prepare the appropriate adjusting entry for the note by Quantum on December 31, 2021.

3. Prepare the journal entry for the payment of the note at maturity.

Answer 1

Journal entries
Date	Accounts title and explanations		Debit $	Credit $
01-Nov	Cash account			1,60,00,000
	Notes payable				1,60,00,000
	(for issuance of note)
31-Dec	Interest expense (16000,000*12% *2/12)	3,20,000
	Interest payable				3,20,000
	(for accrual of interest)
01-Aug	Notes payable			1,60,00,000
	Interest payable			3,20,000
	Interest expense (16000,000*12%*7/12)	11,20,000
	Cash account				1,74,40,000
	(for repayment of notes)