The following selected transactions relate to liabilities of United Insulation Corporation. United’sfiscal year ends on December 31.
Prepare the appropriate journal entries through the maturity of each liability.
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 entry(s).
An annual report of Sprint Corporation contained a rather lengthy narrative entitled “Review of Segmental Results of Operation.” The narrative noted that short-term notes payable and commercial paper outstanding at the end of the year aggregated $756 million and that during the following year “This entire balance will be replaced by the issuance of long-term debt or will continue to be refinanced under existing long-term credit facilities.”
How did Sprint report the debt in its balance sheet? Why?