Singer company has a line of credit with United Bank. So you can borrow up to $4
ID: 2469286 • Letter: S
Question
Singer company has a line of credit with United Bank. So you can borrow up to $400,000 at any time over the course of 2016 calendar year. The following table shows the prime rate expressed as an annual percentage of wrong with the amount borrowed and repaid during the first three months of 2016. They agreed to pay interest at an annual rate equal to 2% above the bank's prime rate funds are borrowed or repaid on the 1st day of each month. Interest is payable in cash on the last day of the month. The interest rate is apply to the outstanding monthly balance. For example singer pays 6.5% ( 4.5% + 2%) annual interest on $140,000 for the month of February. month repaid Prime rate for moth january 80,000 4.0% February march 60,000 20,000 4.5 4.0 Required Provide all journal entries pertaining to singers line of credit for the first three months of 2016
Explanation / Answer
Assuming the amounts are borrowed in the beginning of the months months Borrowed Cumulative borrowing Prime interest rate Total Interest rate Interest amt for the month January 80,000 80,000 4.00% 6.00% 4,800.00 February 60,000 140,000 4.50% 6.50% 9,100.00 March 20,000 160,000 4.00% 6.00% 9,600.00 Journal Entry Date Account Title Dr $ Cr $ Jan 1 2016. Short Term Bank Loan 80,000 Cash 80,000 Jan 31. 2016. Interest Expense 4,800 Cash 4,800 Feb 1.2016. Short Term Bank Loan 60,000 Cash 60,000 Feb 28.2016. Interest Expense 9,100 Cash 9,100 Mar 1 .2016. Short Term Bank Loan 20,000 Cash 20,000 Mar 31.2016. Interest Expense 9,600 Cash 9,600