North Woods Company has a line of credit with Olympia State Bank.North Woods agreed to pay interest at an annual rate equal to 2% above the bank's prime rate.Funds are borrowed or repaid on the first day of each month and interest is paid in cash on the last day of each month.Borrowing is shown as a positive amount,and repayments are shown as negative amounts indicated by parentheses.Activity to date is given as follows:

What is the amount of interest paid at the end of March?
A)$150
B)$300
C)$267
D)$250

Question

North Woods Company has a line of credit with Olympia State Bank.North Woods agreed to pay interest at an annual rate equal to 2% above the bank's prime rate.Funds are borrowed or repaid on the first day of each month and interest is paid in cash on the last day of each month.Borrowing is shown as a positive amount,and repayments are shown as negative amounts indicated by parentheses.Activity to date is given as follows:

What is the amount of interest paid at the end of March?

What is the amount of interest paid at the end of March?
A)$150 
B)$300 
C)$267 
D)$250

Quizplus · Accepted Answer

Balance outstanding at March 31 = $40,000 + $60,000 - $40,000 = $60,000
March Interest expense = Amount outstanding on March 31 of $60,000 × (2% + 3%)× 1/12 = $250

North Woods Company Has a Line of Credit with Olympia