the following selected transactions relate to liabilities of united insulation corporation. uniteds fiscal…
the following selected transactions relate to liabilities of united insulation corporation. uniteds fiscal year ends on december 31. 2024 january 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 $26.0 million at the banks prime rate. february 1 arranged a three - month bank loan of $9.0 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. december 1 supported by the credit line, issued $13.0 million of commercial paper on a nine - month note. interest was discounted at issuance at a 6% discount rate. december 31 recorded any necessary adjusting entry(s). 2025 september 1 paid the commercial paper at maturity. required: prepare the appropriate journal entries through the maturity of each liability. note: do not round intermediate calculations. if no entry is required for a transaction/event, select \no journal entry required\ in the first account field. enter your answers in whole dollars.
Answer
Explanation:
Step1: Record loan on February 1, 2024
The company arranges a $9,000,000 loan. Debit Cash for the amount received and credit Notes Payable - Parish Bank.
| Date | Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|---|
| Feb 1, 2024 | Cash | 9000000 | |
| Notes Payable - Parish Bank | 9000000 |
Step2: Record payment of note on May 1, 2024
First, calculate the interest expense for 3 - month loan. Interest = Principal×Rate×Time. Interest = $9000000×0.07×\frac{3}{12}=157500$. Debit Notes Payable - Parish Bank for the principal and Interest Expense for the interest, and credit Cash for the total amount paid.
| Date | Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|---|
| May 1, 2024 | Notes Payable - Parish Bank | 9000000 | |
| Interest Expense | 157500 | ||
| Cash | 9157500 |
Step3: Record issuance of commercial paper on December 1, 2024
The interest is discounted at issuance. Interest = $13000000×0.06×\frac{9}{12}=585000$. The amount of cash received is $13000000 - 585000=12415000$. Debit Cash for the amount received, Discount on Notes Payable for the interest, and credit Notes Payable - Commercial Paper for the face - value.
| Date | Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|---|
| Dec 1, 2024 | Cash | 12415000 | |
| Discount on Notes Payable | 585000 | ||
| Notes Payable - Commercial Paper | 13000000 |
Step4: Record adjusting entry for interest on December 31, 2024
One month of the 9 - month note has passed. Interest expense for one month = $\frac{585000}{9}=65000$. Debit Interest Expense and credit Discount on Notes Payable.
| Date | Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|---|
| Dec 31, 2024 | Interest Expense | 65000 | |
| Discount on Notes Payable | 65000 |
Step5: Record payment of commercial paper on September 1, 2025
The remaining discount on notes payable is $585000 - 65000 = 520000$. Debit Notes Payable - Commercial Paper for the face - value, Discount on Notes Payable for the remaining discount, and credit Cash for the face - value.
| Date | Account Titles and Explanation | Debit ($) | Credit ($) |
|---|---|---|---|
| Sep 1, 2025 | Notes Payable - Commercial Paper | 13000000 | |
| Discount on Notes Payable | 520000 | ||
| Cash | 13000000 |
Answer:
See the above journal - entry explanations and tables for the appropriate journal entries for each transaction.