The following selected transactions relate to liabilities of Rocky Mountain Adve
ID: 2446405 • Letter: T
Question
The following selected transactions relate to liabilities of Rocky Mountain Adventures. Rocky Mountain?s fiscal year ends on December 31. January 13 Negotiate a revolving credit agreement with First Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $10 million at the bank?s prime rate. February 1 Arrange a three-month bank loan of $4.3 million with First Bank under the line of credit agreement. Interest at the prime rate of 7% is payable at maturity. May 1 Pay the 7% note at maturity.Explanation / Answer
Date
Title of Account
Debit
Credit
Jan. 13
No Journal Entry Required
Feb. 1
Cash
4300000
Notes Payable
4300000
Notes Payable
4300000
Interest Expense
75250
Cash
4375250
Interest = 4300000 x 7 x3 /100 x 12 = $75250
Date
Title of Account
Debit
Credit
Jan. 13
No Journal Entry Required
Feb. 1
Cash
4300000
Notes Payable
4300000
Notes Payable
4300000
Interest Expense
75250
Cash
4375250