Question

Colson Company has a line of credit with Federal Bank. Colson can borrow up to $403,000 at any time over the course of the 2018 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 2018. 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 6.00 percent (3.50 percent + 2.50 percent) annual interest on $78,800 for the month of January.

Month	Amount Borrowed or (Repaid)			Prime Rate for the Month
January	$	78,800			3.50	%
February		123,200			2.50
March		(17,500	)		3.00
April		29,300			3.50

Required

1. Compute the amount of interest that Colson will pay on the line of credit for the first four months of 2018. (Round answers to nearest whole dollar.)

2. Compute the amount of Colson's liability at the end of each of the first four months. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Answer 1

amount of interest that Colson will pay on the line of credit for the first four months of 2018.

Month (a)	Amount borrowed or repaid at the beginning of the month (b) ($)	Amount outstanding during the month (c) ($)	Interest rate(prime rate + 2.5%) - expressed annually (d)	Interest Paid (e=c*d*1/12) ($)
January	78,800	78,800	6%	394
Feburary	123,200	202,000	5%	842
March	(17,500)	184,500	5.5%	846
April	29,300	213,800	6%	1,069

LIABILITY AT THE END OF EACH MONTH

Month	Balance at the end of the month ($)
January	78,800
Feburary	202,000 (78,800+123,200)
March	184,500 (202,000-17,500)
April	213,800(184,500+29,300)

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