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.

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