FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:Colson Company has a line of credit with Federal Bank. Colson can borrow up to $800,000 at any time over the course
of the 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 the year. Colson agreed to pay interest at an annual rate
equal to 2 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 percent (4 percent + 2 percent) annual interest on $80,000 for the month of January.
Month
January
February
March
April
Amount Borrowed
or (Repaid)
$ 80,000
50,000
(30,000)
20,000
Required
a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year.
b. Compute the amount of Colson's liability at the end of each of the first four months.
Required A Required B
Complete this question by entering your answers in the tabs below.
Month
Prime Rate for
the Month
January
February
March
April
4.00%
4.25
4.50
4.25
Compute the amount of Colson's liability at the end of each of the first four months. (Do not round intermediate calculations.
Round your final answers to the nearest whole dollar.)
Balance End of
Month
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