The following selected transactions relate to liabilities of United Insulation Corporation. Unitedâs fiscal year ends on December 31. 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 bankâs prime rate.
Feb. 1 Arranged a three-month bank loan of $2.0 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 13% was payable at maturity.
May 1 Paid the 13% note at maturity.
Dec. 1 Supported by the credit line, issued $17.6 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 12% 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 2016 and 2017.

13-Jan

No Entry

1-Feb

Dr Cash$25,000,000

Cr Notes Payable $25,000,000

1-May

DrNotes Payable$25,000,000

Cr Interest Expense 812,500

Cr Cash25,812,500

1-Dec

Dr Cash (bal)$16,016,000

Dr Discount On Notes Payable $1,584,000(17,600,000*12%*9/12)

CrNotes Payable $17,600,000

31-Dec

DrInterest Expense$176,000

Discount in Notes Payable $176,000

1-Sep

Dr Interest Expense ($1,408,000

Cr Discount On Notes Payable $1,408,000

1-Sep Dr Notes Payable$17,600,000

Cr Cash $17,600,000

Explanation:

Preparation of the appropriate journal entries through the maturity of each liability 2016 and 2017

13-Jan No Entry

1-Feb

Dr Cash$25,000,000

Cr Notes Payable $25,000,000

1-May

DrNotes Payable$25,000,000

Cr Interest Expense 812,500

(25000000*13%*3/12)

Cr Cash25,812,500

1-Dec

Dr Cash (bal)$16,016,000

($17,600,000-$1,584,000)

Dr Discount On Notes Payable $1,584,000

(17,600,000*12%*9/12)

CrNotes Payable $17,600,000

31-Dec

DrInterest Expense$176,000

Discount in Notes Payable $176,000

(1,584,0000*1/9)

1-Sep

Dr Interest Expense (1,584,000*8/9)$1,408,000

Cr Discount On Notes Payable $1,408,000

1-Sep Dr Notes Payable$17,600,000

Cr Cash $17,600,000

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