Question

The following selected transactions relate to liabilities of United Insulation corporation. United's fiscal year ends on December 31. 2018. December 1. Supported by the credit line, issued$10 million of commercial paper on a nine- month note. Interest was discounted at issuance at a 9% discount rate. December 31. Recorded any necessary adjusting entry(s). Required:: Prepare the appropriate journal entries through the maturity of each liability for the 2018.

Answer 1

On DEC 01

$10 million of commercial paper on a nine-month note.

Interest was discounted at issuance at a 9% discount rate for nine months

So interest need to be recognized for nine months.

so journal entry will be

CASH ACCOUNT. .. . . Dr. $9,325,000
Discount on note payable account.... Dr $675,000 ($10,000,000 x 9% x 9/12)
To Note payable account..... Cr.$10,000,000

Dec 31
necessary adjusting entry will be
Interest expense.....Dr $75,000

($10,000,000 x 9% x 1/12)
To Discount on note payable... Cr $75,000

S