Question

The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31. 2018 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 $29.5 million at the bank’s prime rate. Feb. 1 Arranged a three-month bank loan of $7.2 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 7% was payable at maturity. May 1 Paid the 7% note at maturity. Dec. 1 Supported by the credit line, issued $16.9 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 6% discount rate. 31 Recorded any necessary adjusting entry(s).2019 Sept. 1 Paid the commercial paper at maturity.

Answer 1

SOLUTION

GIVEN DATA

. given that the amount available under the line of credit is $29.5 million at the bank’s prime rate. Feb. 1 Arranged a three-month bank loan of $7.2 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 7% was payable at maturity. May 1 Paid the 7% note at maturity.

Dec. 1 Supported by the credit line, issued $16.9 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 6% discount rate. 31 Recorded any necessary adjusting entry(s).2019 Sept.

DATE	GENERAL JOURNAL	DEBIT	CREDIT
13-JAN	no journal entry required
1-feb	cash	7200000
	notes payable		7200000
1-may	interest expense	126000
	notes payable	7200000
	cash		7326000
	[7200000*7%*3/12]
1-dec	cash	16139500
	discount on notes payable	760500
	notes payable		16900000
	[16900000*6%*9/12]
31-dec	interest expense	507000
	discount on notes payable		507000
	[16900000*6%*1/12]
1-sep	interest expence	676000
	discount on payable		676000
	[16900000*6%*8/12]
1-sep	notes payable	16900000
	cash		16900000