On March 2, 2016, ACC 211 signed an agreement for a line of credit with the Bank
ID: 2498708 • Letter: O
Question
On March 2, 2016, ACC 211 signed an agreement for a line of credit with the Bank. Under the agreement, ACC 211 can borrow up to 50,000 at any time during the following year. ACC 211 will make any borrowings or repayments on the first day of a month and make interest payments on the last day of any month when a balance exists. The annual interest rate will be the bank's prime rate plus 2% and will be applied to the outstanding monthly balance. The following table gives the appropriate information for April, May, and June of 2016.
Record all necessary journal entries on the dates indicated. Round figures to the nearest dollar.
month amount borrowed or repaid prime rate April 15,000 4.5% May 20,000 4% June (25,000) 5%Explanation / Answer
Date Account Title Debit Credit 1st April Cash 15000 Loan Account 15000 30th April Interest Expenses (15000* (4.5%+2%)*1/12) 81.25 Cash 81.25 1st May Cash 20000 Loan Account 20000 31st May Interest Expenses (35000* (4%+2%)*1/12) 175 Cash 175 1st June Loan Account 25000 Cash 25000 30th June Interest Expenses (10000* (5%+2%)*1/12) 41.67 Cash 41.67
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