Question

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). 2022 Sept. 1 Paid the commercial paper at maturity.

Answer 1

Answer :

Date	Accounts title and explanation	Debit	Credit
13- Jan	No Journal entry required
1- Feb	Cash	7200000
	Note 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 expense	676000
	Discount on payable		676000
	[16900000*6%*8/12]
1- Sep	Note payable	16900000
	Cash		16900000

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