The following selected transactions relate to liabilities of United Insulation C
ID: 2743484 • Letter: T
Question
The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.
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 $29.0 million at the bank’s prime rate.
Arranged a three-month bank loan of $6.0 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 10% was payable at maturity.
Supported by the credit line, issued $16.0 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 9% discount rate.
Calculate the total interest payable through maturity also calculate the interest payable for the year ended December 31, 2013 and December 31, 2014.
2013 Jan.13Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $29.0 million at the bank’s prime rate.
Feb.1Arranged a three-month bank loan of $6.0 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 10% was payable at maturity.
May 1 Paid the 10% note at maturity. Dec.1Supported by the credit line, issued $16.0 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 9% discount rate.
31 Recorded any necessary adjusting entry(s). 2014 Sept.1 Paid the commercial paper at maturity.Explanation / Answer
Jan 13 No Entry Required
Feb 1 (Arranged a three month bank loan)
Cash debit $ 6 million
Bank Loan credit $ 6 million
May 1 Paid the 10% note on maturity
Bank Loan debit $ 6000000
Interest Expense debit $ 150000 (6000000*10%*3/12)
Cash credit $ 6150000
Dec 1 Supported by the credit line, issued $ 16 million of commercial paper on a nine month rate, discounted at 9% rate
Cash debit $ 14920000
Discount on note payable debit $ 1080000 (16000000*9%*9/12)
Note Payable credit 16000000
Dec 31 adjustment entry
Interest Expense debit $ 120000 (16000000*9%*1/12)
discount on note payable credit $ 120000
Sep 1 paid the commercial paper at maturity
Note Payable debit $ 16000000
Interest Expense debit $ 960000
Cash credit $ 16000000
discount on note payable credit $ 960000 (16000000*9%*8/12)