The Following Selected Transactions Relate to Liabilities of Rose Dish

question 148

Essay

The following selected transactions relate to liabilities of Rose Dish Corporation. Rose's fiscal year ends on December 31.

Required:
Prepare the appropriate journal entries through the maturity of each liability.

2018
Feb. 3 Negotiated a revolving credit agreement with Second Bank, which can be renewed annually upon bank approval. The amount available under the line of credit is $30,000,000 at the bank's prime rate.
April 1 Arranged a 3-month bank loan of $12 million with Second Bank under the line of credit agreement. Interest at the prime rate of 8% was payable at maturity.
July 1 Paid the 8% loan at maturity.
Nov. 1 Supported by the credit agreement, issued $20 million of commercial paper on a 9-month note. Interest was discounted at issuance at a 6% discount rate.
Dec. 31 Recorded any necessary adjusting entry(s).

2019
Aug. 1 Paid the commercial paper at maturity.

---

Definitions:

Fiduciary Duty

The legal obligation to act in another party's best interest, often found in relationships involving trust, like between a lawyer and client or shareholder and company director.

Relationship Of Trust

A fiduciary association between parties, where one party places trust and confidence in another who has a duty to act for the former's benefit.

Secret Profit

Earnings or benefits gained by an individual, typically in a position of trust, without the knowledge or approval of those entitled to know about such gains.

Agency Relationship

The legal arrangement where one party, the agent, acts on behalf of another, the principal, within the scope of authority granted by the principal.