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Accounting for Current Liabilities.

1. On November 1, 2011, Quantum Technology, a geothermal energy supplier, borrowed $8.30 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, 13% promissory note. Interest was payable at maturity. Quantum's fiscal period is the calendar year.

(1) Prepare the journal entry for the issuance of the note by Quantum Technology.(Enter your answers in dollars not in millions. Omit the "$" sign in your response.)

(2) Prepare the appropriate adjusting entry for the note by Quantum on December 31, 2011. (Do not round intermediate calculations. Round your answers to the nearest dollar amount. Enter your answers in dollars not in millions. Omit the "$" sign in your response.)

(3) Prepare the journal entry for the payment of the note at maturity. (Do not round intermediate calculations. Round your answers to the nearest dollar amount. Enter your answers in dollars not in millions. Omit the "$" sign in your response.)

2. The following selected transactions relate to liabilities of Interstate Farm Implements for December of 2011. Interstate's fiscal year ends on December 31.

Required:

Prepare the appropriate journal entries for these transactions.

(1) On December 15, received $7,000 from Bradley Farms toward the purchase of a $105,000 tractor to be delivered on January 6, 2012. (Omit the "$" sign in your response.)

(2) During December, received $29,000 of refundable deposits relating to containers used to transport equipment parts. (Omit the "$" sign in your response.)

(3) During December, credit sales totaled $720,000. The state sales tax rate is 7% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.)(Omit the "$" sign in your response.)

3. The following selected transactions relate to liabilities of Interstate Farm Implements for December of 2011. Interstate's fiscal year ends on December 31.

Required:

Prepare the appropriate journal entries for these transactions.

(1) On December 15, received $7,000 from Bradley Farms toward the purchase of a $105,000 tractor to be delivered on January 6, 2012. (Omit the "$" sign in your response.)

(2) During December, received $29,000 of refundable deposits relating to containers used to transport equipment parts. (Omit the "$" sign in your response.)

(3) During December, credit sales totaled $720,000. The state sales tax rate is 7% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.)(Omit the "$" sign in your response.)

Solution Summary

This solution illustrates how to record borrowing with a note, a purchase using debt, collection of a refundable deposit, and the collection of sales taxes. It also illustrates how to compute the amount of interest due on a note.

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