Question

1. Company C established a $1 million credit line with Bank B and drew down $600,000....

1. Company C established a $1 million credit line with Bank B and drew down $600,000. As a result of these events, Bank B has a $1,000,000 asset – a loan to C, and Company C has a $400,000 liability – borrowing from B. True or False

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

ANSWER

  • Credit line or also known as Line of Credit is the Maximum Limit allowed by Bank/Financial Institution that can be Withdrawn as a Loan
  • The amount of Liability in the Credit Line is the amount of Drawings actually made by the company rather than the Full amount of Line of Credit.
  • Hence in this Question, it is Given the Fact that the actual amount drawn by Company C is $ 600000   the Amount of Liability that should be Recorded by Company C should be $ 600000.
  • HENCE STATEMENT IS FALSE.
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Fernandez has applied for a revolving credit line of $ 9 million to assist in marketing...
Fernandez has applied for a revolving credit line of $ 9 million to assist in marketing a new product line. The terms of the loan will be as follows: (a) All the loans will be discount loans. (b) A commitment fee of 0.1 percent on the unused portion of the loan will be charged. (c) The compensatory balance requirements will be 3 percent on the total credit line and 2 percent on the outstanding loans. (d) The bank will pay...
On a $1 million line of credit for one year, a company has agreed to the...
On a $1 million line of credit for one year, a company has agreed to the following conditions: (A) accrue 0.52% monthly interest on any funds borrowed; (B) maintain a compensating balance of 8.90% of any funds borrowed; and (C) pay the accrued interest and the amount borrowed together at the end of the year. The company does not have excess cash and will need to borrow additional funds under the line of credit to keep the compensating balance. If...
Kalamazoo Company has a $5 million revolver with its bank to borrow at an annual interest...
Kalamazoo Company has a $5 million revolver with its bank to borrow at an annual interest rate of 4 percentage point above the prime rate (currently 7 percent). The agreement requires the company to maintain a 10% average compensating balance on any funds borrowed under the agreements, as well as to pay a 0.75 percent commitment fee on the unused portion of the credit line. The company’s average borrowing under the agreement during the year is expected to be $3...
On a $1 million line of credit for one year, a company has agreed to the...
On a $1 million line of credit for one year, a company has agreed to the following conditions: (A) accrue 0.62% monthly interest on any funds borrowed; (B) maintain a compensating balance of 8.42% of any funds borrowed; and (C) pay the accrued interest and the amount borrowed together at the end of the year. The company does not have excess cash and will need to borrow additional funds under the line of credit to keep the compensating balance. If...
Mr. Fernandez has applied for a revolving credit line of $ 8 million to assist in...
Mr. Fernandez has applied for a revolving credit line of $ 8 million to assist in marketing a new product line. The terms of the loan will be as follows: (a) All the loans will be discount loans. (b) A fixed commitment fee of 0.2 percent will be charged. (c) The compensatory balance requirements will be 7 percent on the total credit line and 7 percent on the outstanding loans. (d) The bank will pay 3 percent interest on demand...
Mr. Fernandez has applied for a revolving credit line of $ 4 million to assist in...
Mr. Fernandez has applied for a revolving credit line of $ 4 million to assist in marketing a new product line. The terms of the loan will be as follows: (a) The loan will not be a discount loan. ( b) A commitment fee of 0.2 percent on the unused portion of the loan will be charged. (c) The compensatory balance requirements will be 7 percent on the total credit line and 6 percent on the outstanding loans. ( d)...
The Pulaski Company has a line of credit with a bank under which it can borrow...
The Pulaski Company has a line of credit with a bank under which it can borrow funds at a 5 percent interest rate. The company plans to borrow $82,000 and is required by the bank to maintain a 20 percent compensating balance. Assume that there are 365 days per year. Determine the annual financing cost of the loan for a year under each of the following conditions: Round your answer to two decimal places. The company currently maintains $7,000 in...
Caylor Inc. needs to borrow $300,000 for the next 6 months. The company has a line...
Caylor Inc. needs to borrow $300,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with a 10% interest rate subject to a 25% of loan compensating balance. Currently, Caylor Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will Caylor Inc. need to borrow? a. $330,000 b....
1) Shelby Inc. negotiates a 1-year, $10 million revolving line of credit with Union Bank under...
1) Shelby Inc. negotiates a 1-year, $10 million revolving line of credit with Union Bank under the following terms: - Commitment fee = 0.30% of unused portion of the line, payable monthly in arrears. - Interest rate = 1.25% over Union Bank’s Prime Rate (interest paid monthly in arrears). - Assume a 360-day year (?12 months of 30 days each). - Union Bank’s Prime Rate is currently at 3.5% and is not expected to change during the next 12 months....
Suppose that a business line of a bank has a loan book of USD 100 million....
Suppose that a business line of a bank has a loan book of USD 100 million. The average interest rate is 10%. The book is funded at a cost of USD 5.5 million. The economic capital against these loans is USD 7.5 million (7.5% of the loan value) and is invested in low risk securities earning 5.5% per annum. Operating costs are USD 1.5 million per annum and the expected loss on this portfolio is assumed to be 1% per...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT