Chapter 8, Problem 8.6E

Record a line of credit (LO8–2)

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 %5 million with Fust 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.