On november 1, 2018, 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. & 3. prepare the appropriate adjusting entry for the note by quantum on december 31, 2018 and journal entry for the payment of the note at maturity.

cash        16,000,000 debit

 note payable    16,000,000 credit

-- to record issuance of the note--

interest expense    240,000 debit

  interest payable          240,000 credit

--to record december 31th adjsuting entry--

note payable       16,000,000 debit

interest expense   1,200,000 debit

interest payable       240,000 debit

       Cash                         17,440,000 credit

-- to record honor of the note --

Explanation:

Timeline

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 Issuance    adjusting entry        maturity

Issuance: the note enter the accounting at his face value along with the cash received.

adjusting entry at year-end

the company recognize the accued interest expense for 2 complete months (Nov 1st to Dec 31th)

16,000,000 x .12 x 2/12 = 240,000

at maturity Quantum Technology pays the principal and interest:

16,000,000 x .12 x 9/12 = 1,440,000

but a portion of this interest are accrued already an recognize as a payable so we write-them off.

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