Question

The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.

2021

Jan.		13		Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $20 million at the bank’s prime rate.
Feb.		1		Arranged a three-month bank loan of $5 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 10% was payable at maturity.
May		1		Paid the 10% note at maturity.
Dec.		1		Supported by the credit line, issued $10 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 9% discount rate.
		31		Recorded any necessary adjusting entry(s).

2022

Sept.

1

Paid the commercial paper at maturity.

Required:
Prepare the appropriate journal entries through the maturity of each liability. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
  

Answer 1

Journal Entries
Date	Account Titles and Explanations	Debit	Credit
2021
Jan. 13	No journal entry is prepared due to the loan is not made yet)
Feb. 1	Cash	$5,000,000
	Notes Payable		$5,000,000
	(To record the issue of notes)
May. 1	Notes Payble	$5,000,000
	Interest Expense ($5,000,000*10/100*3/12 months)	$125,000
	Cash ($5,000,000 + $125,000)		$5,125,000
	(To record the payment of 10% note at maturity)
Dec. 1	Cash ($10,000,000 - $675,000)	$9,325,000
	Discount on Notes Payable ($10,000,000*9/100*9/12 months)	$675,000
	Notes Payable		$10,000,000
	(To record the issue of $10 million of commercial papers with discount)
Dec. 31	Interest Expense ($675,000*1/9 months)	$75,000
	Discount on Notes Payable		$75,000
	(To record the adjusting entry on the commercial papers)
2022
Sep. 1	Interest Expense ($675,000*8/9 months)	$600,000
	Discount on Notes Payable		$600,000
	(To record the adjusting entry on the commercial papers)
Sep. 1	Notes Payble	$10,000,000
	Cash		$10,000,000
	(To record the payment of commercial papers at maturity)