Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2018, to fund a geological survey. The loan was made by Quebec Banque under a short-term financing arrangement. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity. Ontario Resources' fiscal period is the calendar year. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2018.

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Business

Santos Ramirez

23 June, 12:47

Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2018, to fund a geological survey. The loan was made by Quebec Banque under a short-term financing arrangement. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity. Ontario Resources' fiscal period is the calendar year. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2018.

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Shane · Answer 1

The journal entries are shown below:

On December 31, 2018

Interest expense Dr $1,600,000

To Interest payable $1,600,000

(Being the interest expense is recorded)

The computation is shown below:

= Borrowed amount * rate of interest * number of months : total number of months in a year

= $80,000,000 * 12% * 2 months : 12 month

= $1,600,000

The two month is calculated from November 1 to December 31