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On April 1, Online Travel issues $12.6 million of commercial paper with a maturity on December 31 and a 8% interest rate. Record the issuance of the commercial paper and its repayment at maturity.

Respuesta :

Answer:

The Journal entries are as follows:

(i) On April 1st,

Cash A/c                                  Dr. $12,600,000

To commercial paper payable                            $12,600,000

(To record issuance of the commercial paper)

(ii) On December 31st,

Interest expense A/c                   Dr. $756,000

Commercial paper payable A/c  Dr. $12,600,000

To cash                                                                      $13,356,000

(To record commercial paper repayment at maturity)

Workings:

Interest expense = $12,600,000 × 8% × 9/12

                             = $756,000

anthougo

The Journal Entries in the books of Online Travel are as follows:

Journal Entries:

April 1:

Debit Cash $12,600,000

Credit Commercial Paper Payable $12,600,000

  • To record the issuance and cash receipts of the commercial paper at 8% interest rate.

December 31:

Debit Commercial Paper Payable $12,600,000

Debit Interest Expense $756,000

Credit Cash $13,356,000

  • To record the repayment of the commercial paper at maturity with interest.

Data and Calculations:

Issuance of commercial paper on April 1 = $12.6 million

Interest rate = 8%

Maturity period = 9 months ( April 1 - December 31)

Interest expense on December 31 = $756,000 ($12,600,000 x 8% x 9/12)

Analysis:

April 1: Cash $12,600,000 Commercial Paper Payable $12,600,000

December 31: Commercial Paper Payable $12,600,000 Interest Expense $756,000 Cash $13,356,000

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