Franklin Company obtained a $160,000 line of credit from the State Bank on January 1, Year 1. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of Year 1 are shown in the following table. Assume that Franklin borrows or repays on the first day of each month. Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses. Based on this information alone, the amount of interest expense recognized in March would be closest to:
A) $232.
B) $262.
C) $292.
D) $408.

Question

Franklin Company obtained a $160,000 line of credit from the State Bank on January 1, Year 1. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of Year 1 are shown in the following table. Assume that Franklin borrows or repays on the first day of each month. Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses.  Based on this information alone, the amount of interest expense recognized in March would be closest to:
A) $232. 
B) $262. 
C) $292. 
D) $408.

Quizplus · Accepted Answer

$70,000 balance × (5% + 2%) × 1/12 = $408

Franklin Company Obtained a $160,000 Line of Credit from the State