Shilling Motors borrowed $42 million cash on November 1, 2013, to provide working capital for year-end inventory. Shilling issued a 5-month, 12% promissory note to First Bank under a prearranged short-term linde of credit. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year.

Required:

1. Prepare the journal entries to record (a) the issuance of the note by Shilling and (b) First Bank's receivable on November 1, 2013.

2. Prepare the journal entries by both firms to record all subsequent evennts related to the note through March 31, 2014.

3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is the bank's stated "discount rate." Prepare the journal entries to record the issuance of the noninterest-bearing note by Shilling on November 1, 2013. What would be the effective interest rate?