7-32 Accounting for a line of credit Sca Marine Co uses boat which tend to be cl

Question

7-32 Accounting for a line of credit Sca Marine Co uses boat which tend to be clustered in the summer months Account balances at the beginniee mos were as follows a line of credit to help finance its inventory purchases. Sea Marine sells and uses the line of credit to build inventory for its peak sales s and equipment Cash Inventory Common stock Retained earnings $150,000 175,000 200,000 125.000 Sea Marine experienced the following transactions for April, May, and June, 2014. 1. April I, 2014, obtained approval for a line of credit of up to $550,000. Funds are to be obtained or repaid on the first day of each month. The interest rate is the bank prime rate plus I percent. 2. April 1, 2014, borrowed $210,000 on the line of credit. The bank's prime interest rate is 5 percent for January 3. April 15, purchased inventory on account, $180,000. 4. April 31, paid other operating expenses of $96,000. 5. In April, sold inventory for $325,000 on account. The inventory had cost $200,000. 6. April 30, paid the interest due on the line of credit. 7. May I, borrowed $170,000 on the line of credit. The bank's prime rate is 6 percent for May 8. May 1, paid the accounts payable from transaction 3. 9. May 10, collected $312,000 of the sales on account 10. May 20, purchased inventory on account, $265,000. 11. May sales on account were $425,000. The inventory had cost $230,000. 12. May 31, paid the interest due on the line of credit. 13. June I, repaid $130,000 on the line of credit. The bank's prime rate is 6 percent for June 14. June 5, paid $250,000 of the accounts payable 15. June 10, collected $430,000 from accounts receivable 16. June 20, purchased inventory on account, $245,000. 17. June sales on account were $465,000. The inventory had cost $220,000. 18. June 31, paid the interest due on the line of credit. Required a. What is the amount of interest expense for Apri? May? June? b. What amount of cash was paid for interest in April? May? June?

Explanation / Answer

Interest rate

Amount of interest due on month end

amount of interest paid

1-Apr

amount borrowed

210000

5+1 = 6%

30-Apr

balance at april 31

210000

210000*6%/12

1050

1050

1-May

amount borrowed

170000

6+1 =7%

31-May

balance at the end og may 31

380000

380000*7%

2216.667

2216.667

1-Jun

amount of line of credit paid

130000

6+1 =7%

30-Jun

balance at end of june

250000

250000*7%

1458.333

1458.333

Interest rate

Amount of interest due on month end

amount of interest paid

1-Apr

amount borrowed

210000

5+1 = 6%

30-Apr

balance at april 31

210000

210000*6%/12

1050

1050

1-May

amount borrowed

170000

6+1 =7%

31-May

balance at the end og may 31

380000

380000*7%

2216.667

2216.667

1-Jun

amount of line of credit paid

130000

6+1 =7%

30-Jun

balance at end of june

250000

250000*7%

1458.333

1458.333

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.