Question

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.

DEC 31 Recorded any necessary adjusting entry(s).

2019

Sept.

1

Paid the commercial paper at maturity.

Answer 1

jan 13. no entry will be recorded when an agreement is entered.

feb1 bank a/c dr $7.2million

to 3month bank loan a/c $7.2million

may 1 3month bank loan a/c dr $7.2million

interest a/c (7.2million * 3/12 * 7%) dr $ 0.126million

to bank a/c $7.326million

  

P/L a/c dr $0.126million

to interest a/c $0.126million

dec 1

commercial paper issued for 9months again line of credit @ 6% discount rate

bank a/c dr (16.9million / (1 + 6%*9/12) ) $16.172million

discount on commercial papers a/c dr $0.728million

to commercial papers a/c $16.9million

dec 31

P/L a/c dr (0.728 / 9months) $0.08million

to discount on commercial papers a/c $0.08million