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 $24.0 million at the bank’s prime rate.
Feb.		1		Arranged a three-month bank loan of $7.6 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 13% was payable at maturity.
May		1		Paid the 13% note at maturity.
Dec.		1		Supported by the credit line, issued $10.6 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 12% 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.

1) Record a revolving credit agreement negotiated with Parish Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $24.0 million at the bank’s prime rate.

2) Record a three-month bank loan of $7.6 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 13% was payable at maturity

3) Record the payment of the 13% note at maturity

4) Record the issuance of $10.6 million of commercial paper on a nine-month note, supported by the credit line. Interest was discounted at issuance at a 12% discount rate

5) Record necessary adjusting entry to accrue interest on December 31

6) Record interest on commercial paper in 2022

7) Record the repayment of commercial paper at maturity

Answer 1

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