Question

The following selected transactions relate to liabilities of Rocky Mountain Adventures. Rocky Mountain’s fiscal year ends on December 31.

  
January 13 Negotiate a revolving credit agreement with First Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $10 million at the bank's prime rate.

February 1 Arrange a three-month bank loan of $3.4 million with First Bank under the line of credit agreement. Interest at the prime rate of 8% is payable at maturity.

May 1 Pay the 8% note at maturity.

  

Required:

Record the appropriate entries, if any, on January 13, February 1, and May 1. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Answer 1

Answer

Date	Particulars	Dr. $	Cr. $
13-Jan	No entry is required
1-Feb	Bank /Cash	3,400,000
	8% Notes Payable		3,400,000
	(Being loan taken from bank @8% for 3 months)
1-May	8% Notes Payable	3,400,000
	Interest Expense ($3,400,000 * 8% * 3/12 Months)	68,000
	Bank /Cash		3,468,000
	(Being Note repaid on maturity)

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