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On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

Answer :

Answer:

The journal entries which is to be recorded for the issuance as well as the adjusting entry is as:

Explanation:

The journal entries which is to be recorded for the issuance as well as the adjusting entry is shown below:

For issuance of notes payable as:

Cash A/c...............................................Dr  $69 million

             Notes Payable A/c.....................Cr  $69 million

Being record the purchase of the inventory through issuing the notes payable

For adjusting entry on December 31, is as:

Interest Expense A/c................................Dr  $1,897,500

     Interest Payable A/c....................................Cr  $1,897,500

Being record the accrued interest payable for three months

Working Note:

Interest expense = $69,000,000 × 11% × 3 /12

= $1,897,500

Note: 3 Months (from October to December 31)

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