1.
Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2011,
to fund a geological survey. The loan was made by Quebec Banque under a short-term credit
line. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity.
Ontario Resources' fiscal period is the calendar year.
REQUIRED:
A. Prepare the journal entry for the issuance of the note by Ontario Resources.
B. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31,
2011. Show calculations.
C. Prepare the journal entry for the payment of the note at maturity. Show calculations.
Solution
A Cash a/c Dr $80 million To Quebec Banque a/c $80 million (Being amount borrowed
from Quebec Banque) Quebec Banque a/c Dr $80 million To Bills Payable a/c $80 million
(Being 9 month,12% Promissory note issued to Quebec Banque) B Interest a/c Dr $1.07 million
To Quebec Banque a/c $1.07 million (Being interest accrued for 1 month on promissory
note, $80 m*0.12*1/9) C Interest a/c Dr $8.53 million To Quebec Banque a/c $8.53 million
(Being interest accrued on promissory note, $80 m*0.12*8/9) Bills Payable a/c Dr $80 million
Quebec Banque a/c Dr $9.6 million To Cash a/c $89.6 million (Being note, alongwith
interest, settled on maturity)