Question

2024 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 $20 million at the bank's prime rate. feb. 1 arranged a three-month bank loan of $5 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. 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. 31 recorded any necessary adjusting entrys). 2025

Answer 1

This business scenario involves revolving credit, bank loans, and commercial paper issuance with related adjusting entries for accrued interest as the year ends, reflecting financial instruments and interest rate effects.

Step-by-step explanation:

The situation involves business financial transactions such as revolving credit agreements, bank loans, and issuing commercial paper. On January 13, 2024, an agreement was made for a revolving line of credit, which was subsequently used for a $5 million loan at a 10% prime rate from Parish Bank.

The note was repaid on May 1. Later, on December 1, commercial paper worth $10 million was issued with a 9% discount rate due in nine months. As the year-end approaches, any necessary adjusting entries would include accrued interest on the commercial paper, which should be recognized as an expense and a liability.

To calculate adjusting entries, one must account for interest accrued on financial instruments. For the commercial paper, the interest expense should be the face value of the note multiplied by the discount rate, prorated for the period since issuance.