Colson Company has a line of credit with Federal Bank. Colson can borrow up to $362,500 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first four months of Year 1. Colson agreed to pay Interest at an annual rate equal to 1.50 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The Interest rate is applied to the outstanding monthly balance. For example, Colson pays 6.00 percent (4.50 percent +1.50 percent) annual Interest on $78,000 for the month of January. Month January February March April Required: Amount Borrowed or (Repaid) Prime Rate for the Month $ 78,000 4.50% 119,500 3.50 (15,400) 4.00 26,800 4.50 a. Compute the amount of Interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round Intermediate calculations. Round your final answers to the nearest whole dollar. Month Interest Paid January February March April b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar. Balance End of Month Month January February March April
Colson Company has a line of credit with Federal Bank. Colson can borrow up to $362,500 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first four months of Year 1. Colson agreed to pay Interest at an annual rate equal to 1.50 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The Interest rate is applied to the outstanding monthly balance. For example, Colson pays 6.00 percent (4.50 percent +1.50 percent) annual Interest on $78,000 for the month of January. Month January February March April Required: Amount Borrowed or (Repaid) Prime Rate for the Month $ 78,000 4.50% 119,500 3.50 (15,400) 4.00 26,800 4.50 a. Compute the amount of Interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round Intermediate calculations. Round your final answers to the nearest whole dollar. Month Interest Paid January February March April b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar. Balance End of Month Month January February March April
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 31P
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Transcribed Image Text:Colson Company has a line of credit with Federal Bank. Colson can borrow up to $362,500 at any time over the course of the Year 1
calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and
repaid during the first four months of Year 1. Colson agreed to pay Interest at an annual rate equal to 1.50 percent above the bank's
prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The
Interest rate is applied to the outstanding monthly balance. For example, Colson pays 6.00 percent (4.50 percent +1.50 percent)
annual Interest on $78,000 for the month of January.
Prime Rate
Amount Borrowed
or (Repaid)
for the
Month
January
February
Month
$ 78,000
4.50%
119,500
3.50
(15,400)
26,800
4.00
4.50
March
April
Required:
a. Compute the amount of Interest that Colson will pay on the line of credit for the first four months of Year 1.
Note: Do not round Intermediate calculations. Round your final answers to the nearest whole dollar.
Month
Interest Paid
January
February
March
April
b. Compute the amount of Colson's liability at the end of each of the first four months.
Note: Round your final answers to the nearest whole dollar.
Balance End of
Month
Month
January
February
March
April
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