Sayles Co. uses a line of credit to help finance its inventory purchases. Sayles sells ski equipment and uses the line of credit to build inventory for its peak sales months, which tend to be clustered in the winter months. Account balances at the beginning of 2010 were as follows.
Cash ......... $80,000
Inventory ...... 65,000
Common stock .... 70,000
Retained earnings ... 75,000
Sayles experienced the following transactions for January, February, and March, 2010.
1. January 1, 2010, obtained approval for a line of credit of up to $300,000. 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. January 1, 2010, borrowed $50,000 on the line of credit. The bank’s prime interest rate is 5 percent for January.
3. January 15, purchased inventory on account, $82,000.
4. January 31, paid other operating expenses of $12,000.
5. In January, sold inventory for $90,000 on account. The inventory had cost $62,000.
6. January 31, paid the interest due on the line of credit.
7. February 1, borrowed $80,000 on the line of credit. The bank’s prime rate is 6 percent for February.
8. February 1, paid the accounts payable from transaction 3.
9. February 10, collected $81,000 of the sales on account.
10. February 20, purchased inventory on account, $96,000.
11. February sales on account were $130,000. The inventory had cost $91,000.
12. February 28, paid the interest due on the line of credit.
13. March 1, repaid $25,000 on the line of credit. The bank’s prime rate is 5 percent for March.
14. March 5, paid $70,000 of the accounts payable.
15. March 10, collected $120,000 from accounts receivable.
16. March 20, purchased inventory on account, $78,000.
17. March sales on account were $165,000. The inventory had cost $87,000.
18. March 31, paid the interest due on the line of credit.
Required
a. What is the amount of interest expense for January? February? March?
b. What amount of cash was paid for interest in January? February? March?