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Problem 7-25 Effect of a Line of Credit on Financial Statements

Problem 7-25 Effect of a Line of Credit on Financial Statements
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ACCOUNTING

Survey of Accounting
Second (2nd) Edition
Thomas Edmonds, Philip Olds, Frances McNair, Bor-Yi Tsay
ACC 201 ACC/201 Accounting 201

Problem 7-25 Effect of a Line of Credit on Financial Statements

Hulse Company has a line of credit with Bay Bank. Hulse can borrow up to $250,000 at any time over the course of the 2010 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2010. Hulse agreed 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.

AND SO ON

Hulse earned $22000 of cash revenue during 2010.

Required
a. Organize the information in accounts under an accounting equation.
b. Prepare an income statements, balance sheet, and statement of cash flows for 2010.
c. Write a memo discussing the advantanges to a business of arranging a line of credit.

Check:
b. Interest Expense: $5,650
Total Assets: $56,350

 

FILE: MS WORD

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