Question vatue 1000 points The following selected transacti

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

Solution

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