Question

Mott Company has a line of credit with Bay Bank. Mott can borrow up to $400,000 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 2018. Mott agreed to pay interest at an annual rate equal to 1 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, Mott pays 6 percent (5 percent + 1 percent) annual interest on $60,000 for the month of January.

Month	Amount Borrowed or (Repaid)						Prime Rate for the Month, %
January		$	60,000					5
February			40,000					5
March			(30,000	)				6
April through October	No change						No change
November			(20,000	)				6
December			(10,000	)				5

Mott earned $25,000 of cash revenue during 2018.

Required

Organize the information in accounts under an accounting equation. (Round your answers to the nearest whole dollar amount. Enter any decreases to account balances with a minus sign. Select "NA" if there is no effect on the "Accounts Titles for Retained Earnings".)

Answer 1

nformation in accounts under an accounting equation.
Month	Event	Assets	=	Liabilities	+	Stockholders’ Equity
		Cash	=	Notes Payable	+	Retained Earnings
Jan	Amount Borrowed	60000		60000
Jan	Interest Paid (60000*6%/12	-300				-300
Feb	Amount Borrowed	40000		40000
Feb	Interest Paid(60000+40000)*6%/12	-500				-500
Mar	Amount Repaid	-30000		-30000
Mar	Interest Paid(100000-30000)*7%/12	-408				-408
Apr	Interest Paid	-408				-408
May	Interest Paid	-408				-408
June	Interest Paid	-408				-408
July	Interest Paid	-408				-408
Aug	Interest Paid	-408				-408
Sep	Interest Paid	-408				-408
Oct	Interest Paid	-408				-408
Nov	Amount Repaid	-20000		-20000
Nov	Interest Paid(70000-20000)*7%/12	-292				-292
Dec	Amount Repaid	-10000		-10000
Dec	Interest Paid(50000-10000)*6%/12	-200				-200
Rev						25000
Bal		35444		40000		20444