Problem 1 - Boyce Manufacturing, a household products manufacturer, borrowed $10 million cash on October 1, 2019, to provide working capital for year-end production. Boyce issued a four-month, 6% promissory note to Bonilla Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firms fiscal period is the calendar year.

Required:

1. Prepare the journal entries to record (a) the issuance of the note by Boyce Manufacturing and (b) Bonilla Banks receivable on October 1, 2019.
2. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2020.
3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 6% is the banks stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Boyce Manufacturing on October 1, 2019, the adjusting entry at December 31, and payment of the note at maturity. (b) What would be the effective interest rate?