McCorkle & Bungo, Inc. can borrow up to $85,000 on its bank “line of credit”. Th
ID: 2494133 • Letter: M
Question
McCorkle & Bungo, Inc. can borrow up to $85,000 on its bank “line of credit”. The company pays
monthly interest at 2 percent above prime rate. Funds are borrowed or repaid on the first day of each
month. The following activity took place during the months of January through March:
Month
Amounts Borrowed or (Repaid)
Prime Rate
Jan.
$25,000
6 percent
Feb.
$(15,000)
5 percent
March
$30,000
4 percent
_____ 2. The correct amount of interest expense for the month of March would be:
a. $225.00 b. $200.00 c. $133.33 d. $100.00
_____ 3. The correct journal entry to record the above March event would:
A.Include a debit to cash
B. Include a debit to “Credit Line Payable”
C. Reduce reported profitability for the company
D. Decrease interest expense
E. Increase interest revenue
Month
Amounts Borrowed or (Repaid)
Prime Rate
Jan.
$25,000
6 percent
Feb.
$(15,000)
5 percent
March
$30,000
4 percent
Explanation / Answer
2.
The correct option is option - D
30000 x 4%/12 = $100.
3.
The corrcet option is option -C.
Interest expenses should be reduced for profit to show the net profitability for the company.