Rocky Mountain Products has a line-of-credit agreement with Norwest Bank that allows it to borrow up to
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1. Prepare the journal entry to record the borrowing of $35,000 on January 1, 2011. By how much did this transaction increase or decrease the excess of current assets over current liabilities?
2. Assume that Rocky Mountain used the entire amount of the loan to purchase inventory. Prepare the journal entry to record the purchase. (Note: The company uses a perpetual inventory system.) By how much did this purchase increase or decrease the excess of current assets over current liabilities?
3. Without violating the loan restriction, how much more could Rocky Mountain borrow under its line of credit on January 1, 2011, to invest in inventory? To invest in new equipment? Explain. Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...
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Related Book For
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
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