Question

The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.

2021

Jan.		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 $25.0 million at the bank’s prime rate.
Feb.		1		Arranged a three-month bank loan of $4.2 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 14% was payable at maturity.
May		1		Paid the 14% note at maturity.
Dec.		1		Supported by the credit line, issued $15.9 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 13% discount rate.
		31		Recorded any necessary adjusting entry(s).

2022

Sept.

1

Paid the commercial paper at maturity.

Required:

Prepare the appropriate journal entries through the maturity of each liability. (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.)

Answer 1

Journal Entries:

2021

Jan 13 - No journal entry required.

Feb 1 - Cash A/c                                            Dr                         4200000

                     To Loan from Parish Bank A/c                                                   4200000

Interest on Loan from Parish Bank: 4200000 * 14% * 3/12 = 147000

May 1   Loan from Parish Bank A/c                 Dr                        4200000

             Interest Expense A/c                           Dr                        147000

                      To Cash A/c                                                                              4347000

Dec 1   Cash A/c                                            Dr                         14349750

             Discount on Notes Payable A/c        Dr                           1550250

                       To Notes Payable A/c                                                               15900000

Discount on Notes Payable - 15900000 * 13% * 9/12 = 1550250

Dec 31 Interest Expense A/c                       Dr                           1550250

                        To Discount on Notes Payable A/c                                                        1550250

2022

Sep 1    Notes Payable A/c                            Dr                           15900000

                         To Cash A/c                                                                              15900000