Franklin Company obtained a $160,000 line of credit from 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.

What is the amount of interest expense recognized in March?

Question

Franklin Company obtained a $160,000 line of credit from 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.

What is the amount of interest expense recognized in March?

Quizplus · Accepted Answer

Balance outstanding at March 31 = $40,000 - $10,000 + $40,000 = $70,000
March Interest expense = Amount outstanding on March 31 of $70,000 × (5% + 2%)× 1/12 = $408

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