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Colson Company has a line of credit with Federal Bank. Colson can borrow up to...

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Accounting

Colson Company has a line of credit with Federal Bank. Colson can borrow up to $468,500 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first four months of Year 1. Colson agreed to pay interest at an annual rate equal to 3.00 percent above the banks 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. The interest rate is applied to the outstanding monthly balance. For example, Colson pays 6.50 percent (3.50 percent + 3.00 percent) annual interest on $77,000 for the month of January. Month Amount Borrowed or (Repaid) Prime Rate for the Month January $ 77,000 3.50% February 118,300 2.50 March (24,700) 3.00 April 25,900 3.50 Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1.

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