Elite Boat Sales uses a line of credit to help finance its inventory purchases. Elite Boat Sales
Question:
Elite Boat Sales uses a line of credit to help finance its inventory purchases. Elite Boat Sales 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 2018 were as follows.
Cash....................................$120,000
Inventory..............................225,000
Common stock.....................185,000
Retained earnings................160,000
Elite Boat Sales experienced the following transactions for April, May, and June 2018:
1. April 1, 2018, obtained approval for a line of credit of up to $700,000. 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, 2018, borrowed $190,000 on the line of credit. The bank's prime interest rate is 5 percent for April.
3. April 15, purchased inventory on account, $210,000.
4. April 31, paid other operating expenses of $105,000.
5. In April, sold inventory for $420,000 on account. The inventory had cost $250,000.
6. April 30, paid the interest due on the line of credit.
7. May 1, borrowed $230,000 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 $380,000 of the sales on account.
10. May 20, purchased inventory on account, $230,000.
11. May sales on account were $510,000. The inventory had cost $305,000.
12. May 31, paid the interest due on the line of credit.
13. June 1, repaid $150,000 on the line of credit. The bank's prime rate is 6 percent for June.
14. June 5, paid $280,000 of the accounts payable.
15. June 10, collected $630,000 from accounts receivable.
16. June 20, purchased inventory on account, $375,000.
17. June sales on account were $605,000. The inventory had cost $370,000.
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?
Accounts PayableAccounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...
Step by Step Answer:
a Interest Expense April 190000 x 6 x 112 950 May 420000 x ...View the full answer
Survey of Accounting
ISBN: 978-1259631122
5th edition
Authors: Thomas Edmonds, Christopher Edmonds, Philip Olds, Frances McNair, Bor Yi Tsay
