Question

Sea Marine Co. uses a line of credit to help finance its inventory purchases. Sea Marine sells boats and equipment and uses the line of credit to build inventory for its peak sales months, which tend to be clustered in the summer months. Account balances at the beginning of 2014 were as follows.
Cash ............. $150,000
Inventory ........... 175,000
Common stock ......... 200,000
Retained earnings ....... 125,000
Sea Marine experienced the following transactions for April, May, and June, 2014.
1. April 1, 2014, obtained approval for a line of credit of up to $550,000. Funds are to be obtained or repaid on the first day of each month. The interest rate is the bank prime rate plus 1 percent.
2. April 1, 2014, borrowed $210,000 on the line of credit. The bank’s prime interest rate is 5 percent for January.
3. April 15, purchased inventory on account, $180,000.
4. April 31, paid other operating expenses of $96,000.
5. In April, sold inventory for $325,000 on account. The inventory had cost $200,000.
6. April 30, paid the interest due on the line of credit.
7. May 1, borrowed $170,000 on the line of credit. The bank’s prime rate is 6 percent for May.
8. May 1, paid the accounts payable from transaction 3.
9. May 10, collected $312,000 of the sales on account.
10. May 20, purchased inventory on account, $265,000.
11. May sales on account were $425,000. The inventory had cost $230,000.
12. May 31, paid the interest due on the line of credit.
13. June 1, repaid $130,000 on the line of credit. The bank’s prime rate is 6 percent for June.
14. June 5, paid $250,000 of the accounts payable.
15. June 10, collected $430,000 from accounts receivable.
16. June 20, purchased inventory on account, $245,000.
17. June sales on account were $465,000. The inventory had cost $220,000.
18. June 31, paid the interest due on the line of credit.

Required
a. What is the amount of interest expense for April? May? June?
b. What amount of cash was paid for interest in April? May? June?



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  • CreatedMay 22, 2014
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