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.

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Definitions:

Convertible Securities

Bonds or preferred stocks that can be exchanged for (converted into) common stock, under specific terms, at the option of the holder. Unlike the exercise of warrants, conversion of a convertible security does not provide additional capital to the issuer.

Preferred Stocks

A type of stock that gives holders preference over common stockholders in terms of dividends and asset liquidation.

Common Stock

Equity ownership shares in a corporation, giving holders voting rights and a claim on a portion of the company's profits via dividends.

Asset Securitizations

The financial process by which assets are pooled together and securities are issued representing an interest in these assets.