Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2 Colson Company has a line of credit with Federal Bank. Colson can borrow up to $482,500 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 2.00 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 5.50 percent (3.50 percent + 2.00 percent) annual interest on $80,300 for the month of January. Month January February March April Month Amount Borrowed Prime Rate for or (Repaid) the Month $ 80,300 116,100 (24,500) 32,500 Required a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) January February March April 3.50% 2.50 3.00 3.50 Interest Paid $ 4,417 8,838 8,595 11,242
Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2 Colson Company has a line of credit with Federal Bank. Colson can borrow up to $482,500 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 2.00 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 5.50 percent (3.50 percent + 2.00 percent) annual interest on $80,300 for the month of January. Month January February March April Month Amount Borrowed Prime Rate for or (Repaid) the Month $ 80,300 116,100 (24,500) 32,500 Required a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) January February March April 3.50% 2.50 3.00 3.50 Interest Paid $ 4,417 8,838 8,595 11,242
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2
Colson Company has a line of credit with Federal Bank. Colson can borrow up to $482,500 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 2.00 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 5.50 percent (3.50 percent + 2.00 percent)
annual interest on $80,300 for the month of January.
Month
January
February
March
April
Month
January
February
Amount Borrowed Prime Rate for
or (Repaid)
the Month
$ 80,300
Required
a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. (Do not round
intermediate calculations. Round your final answers to the nearest whole dollar.)
March
April
116, 100
(24,500)
32,500
Interest Paid
$
3.50%
2.50
3.00
3.50
4,417
8,838
8,595
11,242
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