# Colson Company Line of Credit AnalysisColson Company has established a line of credit with Federal Bank. The company can borrow up to $386,000 at any time during the calendar year. The table below outlines the prime rate (as an annual percentage) along with the amounts borrowed or repaid over the first four months of the year. Colson agreed to pay interest at an annual rate that is 2.50 percent above the bank’s prime rate. Funds are either borrowed or repaid on the first day of each month, with interest payable in cash at the end of the month. For example, in January, Colson pays 6.25 percent interest (3.75 percent prime rate + 2.50 percent additional).| Month | Amount Borrowed or (Repaid) | Prime Rate for the Month ||-----------|-----------------------------|--------------------------|| January | $81,000 | 3.75% || February | $117,900 | 2.75% || March | ($24,400) | 3.25% || April | $27,600 | 3.75% |## Requirements### (a) Compute the InterestCalculate the total interest Colson will pay on the line of credit during the first four months of the year.### (b) Compute LiabilitiesDetermine Colson's liability at the end of each of the first four months.### InstructionsTo answer these questions, complete the calculations and fill out the tables provided for the respective months.### Complete This Question by Entering Your Answers- **Required A & B**: Input your answers for interest and liability in the provided tabs.#### Compute Colson’s Liability at Month-End- Provide answers rounded to the nearest dollar, without rounding during intermediate calculations.| Month | Balance End of Month ||-----------|----------------------|| January | || February | || March | || April | |Explore the calculations to understand the impact of borrowing and repayment decisions on financial liabilities. Colson Company has a line of credit with Federal Bank. Colson can borrow up to $386,000 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 2.50 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 6.25 percent (3.75 percent + 2.50 percent) annual interest on $81,000 for the month of January.| Month | Amount Borrowed (or Repaid) | Prime Rate for the Month ||----------|----------------------------|--------------------------|| January | $81,000 | 2.75% || February | $117,900 | 2.75% || March | ($24,400) | 3.25% || April | $27,600 | 3.75% |**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.Complete this question by entering your answers in the tabs below.**Required A:**Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year. (Round your answers to the nearest whole dollar.)| Month | Interest Paid ||----------|---------------|| January | || February | || March | || April | |

Interest typically refers to the cost of borrowing money or the earnings generated from investing…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Complete this question by entering your answers in the tabs Required A Required B Compute the amount of Colson's liability at the end of each of the fir Round your final answers to the nearest whole dollar.) Month January February March April Balance End of Month < Required A