Question

On November 1, 2021, Quantum Technology, a geothermal energy supplier, borrowed $4 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, 9% 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 and journal entry for the payment of the note at maturity. No Date General Journal Credit Debit 1 November 01, 202 Cash 5,000,000 Notes payable 5.000.000 2 December 31, 202 Interest expense 50.000 Interest payable 50.000 3 July 31, 2022 Notes payable 5.000.000 Interest payable 5,000,000

Answer 1

Answer:

November 1, 2021, bank loan from Nevada BankCorp

Dr Cash 4,000,000

    Cr Notes payable 4,000,000

December 31, 2021, accrued interest on bank loan

Dr Interest expense 60,000

    Cr Interest payable 60,000

Interest expense = $4,000,000 x 9% x 2/12 months = $60,000

July 31, 2022, bank loan repaid

Dr Notes payable 4,000,000

Dr Interest expense 210,000

Dr Interest payable 60,000

    Cr Cash 4,270,000