Question

Singer Company has a line of credit with United Bank. Singer can borrow up to $374,000 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 three months of Year 1. Singer 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, Singer pays 5.75 percent (3.75 percent + 2.00 percent) annual interest on $79,200 for the month of February.

Month	Amount Borrowed or (Repaid)			Prime Rate for the Month
January	$	79,200			3.75	%
February		119,000			2.75
March		(19,300	)		3.25

Required
Provide all journal entries pertaining to Singer’s line of credit for the first three months of Year 1. (Round your final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Singer Company has a line of credit with United Bank. Singer can borrow up to $374,000 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 three months of Year 1. Singer 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, Singer pays 5.75 percent (3.75 percent + 2.00 percent) annual interest on $79,200 for the month of February.

Month	Amount Borrowed or (Repaid)			Prime Rate for the Month
January	$	79,200			3.75	%
February		119,000			2.75
March		(19,300	)		3.25

Required
Provide all journal entries pertaining to Singer’s line of credit for the first three months of Year 1. (Round your final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

Journal entries:

Date	Account title and explanation	Debit	Credit
1 Jan	Cash	$79,200
	Notes payable		$79,200
31 Jan	Interest expense	$377
	Cash		$377
1 feb	Cash	$119,000
	Notes payable		$119,000
28th feb	Interest expense	$783
	Cash		$783
1 mar	Notes payable	$19,300
	Cash		$19,300
31st march	Interest expense	$781
	Cash		$781

Working:

1st january = 79,200 *[(3.72%+2%)/12] =$377

1st February =198,000*[(2.75%+2%)/12] =$783

1st March = 178,700*[(3.25%+2%)/12] =$781

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