The following selected transactions relate to liabilities of Food Emporium whose

Question

The following selected transactions relate to liabilities of Food Emporium whose fiscal year ends on December 31. January 26 Negotiated a line of credit with City Bank that can De renewed annually upon bank approval. The amount available under the line of credit is $3 60 million at the bank's prime rate. March 1 Arranged a six-month bank loan of $480,000 with City Bank under the line of credit agreement Interest at the prime rate of 9% is payable at maturity September 1 Paid the 9% note at maturity. Record the appropriate entries, if any. on January 26. March 1, and September 1 (Enter your answers in dollars, not in millions. Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Negotiated a line of credit with City Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $3.60 million at the bank's prime rate.

Explanation / Answer

The transaction of Jan 26 is only a negotiation dependent on bank approval, and is a contingent event. It is not a transaction and should not be recorded.

(March 1)

DR Cash $480,000

         Short-term loan payable $480,000

(To record short term loan availed from bank)

(Sept 1)

DR Short-term notes payable    $480,000

DR Interest on short-term loan $21,600**

        Cash                                  501,600

(To record repayment of short term loan with interest)

**Interest on loan for 6 months = $480,000 x 9% x (6/12) = $21,600

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