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 banks prime rate.
February		1		Arrange a three-month bank loan of $3.2 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.

Required:

Record the appropriate entries, if any, on January 13, February 1, and May 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Journal entry worksheet

• Record the receipt of revolving credit.

Note: Enter debits before credits.

	Date General Journal Debit Credit January 13

Journal entry worksheet

• Record the bank loan.

Note: Enter debits before credits.

	Date General Journal Debit Credit February 01

Journal entry worksheet

• Record the payment of the note at maturity.

Note: Enter debits before credits.

	Date General Journal Debit Credit May 01

Answer 1

		Debit	Credit
January 13	No Journal Entry Required
February 01	Cash	3200000
	Notes payable		3200000
May 01	Interest expense	56000		=3200000*7%*3/12
	Notes payable	3200000
	Cash		3256000