Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,040,000 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 two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 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, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $154,800 for the month of January. Month January February Month Amount borrowed or (repaid) January February $154,800 (31,600) Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month
Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,040,000 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 two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 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, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $154,800 for the month of January. Month January February Month Amount borrowed or (repaid) January February $154,800 (31,600) Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 30P
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Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,040,000 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 two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 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, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $154,800 for the month of January. Month January February Month Amount borrowed or (repaid) January February $154,800 (31,600) Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month
Transcribed Image Text:Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,040,000 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 two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 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, Bridgeport pays 4 percent (3 percent + 1 percent)
annual interest on $154,800 for the month of January.
Month
January
February
Month
Amount
borrowed or
January
February
(repaid)
$154,800
(31,600)
Required:
Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months.
Prime rate
for the
(a) Interest
Pald
month
38
3.5%
(b) Balance
End of Month
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