Ferguson Company obtained a 95000 line of credit from the Me

Ferguson Company obtained a $95,000 line of credit from the Me bank\'s prime lending rate. The bank\'s prime rate of interest and the borrows or repays on the first day of each month. Borrowing is sho Amount Borrowed Prime Rate of Date January 1 February1 March 1 or (Repaid) $26,000 (8,000) 26,000 Interest 4.0% 4.5% 5.0% The amount of interest expense recognized in March, rounded to fth $165. O $147 O $257 O $183

Solution

month borrowed repaid total interest interest p.m.

jan 26000 26000 4% + 2% 132

(26000 * 6% * 31/365)

interest of jan paid on feb 1st i.e. of 132 out of 8000repaid amount is taken for interest and balance to be adjusted against principal.

feb 7868 18132 4.5% + 2% 91

(18132*6.5%*28/365)

interest of feb of 91 not paid in march1st and borrowed 26000.

hence it should be added to principal borrowed. and previous pending balance should also be added i.e. (18132 + 26000 + 91) = 44223

mar 44223 44223 5% + 2% 263  

(44223*7%*31/365)