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16 April, 07:37

On November 1, 2018, Quantum Technology, a geothermal energy supplier, borrowed $22 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. & 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.

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  1. 16 April, 09:31
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    when signing the note:

    cash 22,000,000

    note payable 22,000,000

    accrued interest at december 31th, 2018

    interest expense 330,000 debit

    interest payable 330,000 credit

    payment of the note:

    payment of the note

    note payable 22,000,000

    interest payable 330,000

    interest expense 1,185,000

    cash 23,485,000

    Explanation:

    adjusting entry:

    principal x rate x time

    22,000,000

    rate 9% / 12 = 0.0075

    months 2

    We must express rate and time in the same metric, in this case, months

    22,000,000 x 0.75 x 2 = 330,000 accrued interest

    payment of the note:

    22,000,000 x 0.75 x 9 = 1,485,000

    already accrued 330,000

    interest expense 1,185,000
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