Question

Jan. 13 Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon...

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.

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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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