On November 1, 2016, Quantum Technology, a geothermal energy supplier, borrowed

Question

On November 1, 2016, Quantum Technology, a geothermal energy supplier, borrowed $28 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.

Prepare the journal entry for the issuance of the note by Quantum Technology. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

2. Prepare the appropriate adjusting entry for the note by Quantum on December 31, 2016 and journal entry for the payment of the note at maturity. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

On November 1, 2016, Quantum Technology, a geothermal energy supplier, borrowed $28 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.

Explanation / Answer

(USD in millions)

1. Bank A/c Dr. 28

To Non committed short term line of credit 28

( Being loan amount received in the bank)

2. Non committed short term line of credit 28

To 12% Promissory note 28

( Being loan liability settled by issuing promissory notes)

3. On 31st December -

   Interest Expense A/c Dr. 0.56

Interest Accrued A/c 0.56

(Intt expense recoreded for two months; Novemeber and december)

4. P and L A/c Dr. 0.56

To Interest Expense 0.56

   (Being expense written off)   

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