Question vatue 10.00 points · The following selected transactions relate to liab

Question

Question vatue 10.00 points · The following selected transactions relate to liablities of United Insulation Corporation. United's fiscal year ends on December 31 2016 Jan 13 Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon bank Feb 1 Arranged a three-month bank loan of $6 2 million with Parish Bank under the line of credit May 1 Paid the 13% note at maturity approval. The amount available under the line of credit is $27 0 million at the bank's prime rate agreement Interest at the prime rate of 13% was payable at maturity Dec.1 Supported by the credit line, issued $14.9 million of commercial paper on a nine-month note Interest was discounted at issuance at a 12% discount rate. 31 Recorded any necessary adjusting entry(s) 2017 Sept 1 Paid the commercial paper at matunity Required: Prepare the appropriate journal entries through the matunty of each liabilty 2016 and 2017 (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.) ew transaction list Journal entry worksheet 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 $27.0 million at the bank's prime rate. Note: Enter debits before credits. Date General Journal Debit Credit Jan 13, 2016 o

Explanation / Answer

Explanation:

2016

Jan 13= No entry is made for a line of credit until a loan actually is made. It would be described in a disclosure note.

May 1 = Interest expense ($6,200,000 × 13% × 3/12) = $201,500

Notes payable (face amount) = $6,200,000

Cash ($6,200,000 + $201,500) = $6,401,500

Dec. 1 = Cash (difference) = $13,559,000

Discount on notes payable ($14,900,000 × 12% × 9/12) = $1,341,000

Notes payable (face amount) = $14,900,000

Dec. 31 = The effective interest rate is 13.19% ($1,341,000 ÷ $13559000) × 12/9. So, properly, interest should be recorded at that rateoutstanding balance times one-twelfth of a year:

Interest expense ($13,559,000 × 13.19% × 1/12) = $149036

Discount on notes payable = $149000

However the same results are achieved if interest is recorded at the discount rate times the maturity amount times one-twelfth of a Interest expense ($14,900,000 × 12% × 1/12) = $147,000

Discount on notes payable = $149,000

2017

Sept. 1 = Interest expense ($14,900,000 × 12% × 8/12)* = $1,192,000

Discount on notes payable = $1,192,000

Notes payable (balance) = $14,900,000

Cash (maturity amount) = $14,900,000

Date General Journal Debit Credit Jan 13, 2016 No journal entry required Feb 01, 2016 Cash 6200000 Notes payable 6200000 May 01, 2016 Interest Expense 201500 Notes payable 6200000 Cash 6,401,500 Dec 01, 2016 Cash 13,559,000 Discount on notes payable 1341000 Notes payable 14900000 Dec 31, 2016 Interest Expense 149000 Discount on notes payable 149000 Sep 01, 2017 Interest Expense 1192000 Discount on notes payable 1192000 Sep 01, 2017 Notes payable 14,900,000 Cash 14,900,000

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