Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. mott company has a line of credit with bay bank. m

Mott Company has a line of credit with Bay Bank. Mott can borrow up to $570,000...

Free

80.2K

Verified Solution

Question

Accounting

Mott Company has a line of credit with Bay Bank. Mott can borrowup to $570,000 at any time over the course of the calendar year.The following table shows the prime rate expressed as an annualpercentage along with the amounts borrowed and repaid during theyear. Mott agreed to pay interest at an annual rate equal to 1percent above the bank’s prime rate. Funds are borrowed or repaidon the first day of each month. Interest is payable in cash on thelast day of the month. The interest rate is applied to theoutstanding monthly balance. For example, Mott pays 8 percent (7percent + 1 percent) annual interest on $75,000 for the month ofJanuary. Month Amount Borrowed or (Repaid) Prime Rate for theMonth, % January $ 75,000 7 February 57,000 7 March (50,000 ) 8April through October No change No change November (36,000 ) 8December (22,000 ) 7 Mott earned $42,000 of cash revenue during theyear. Prepare an income statement, balance sheet, and statement ofcash flows for the year.

Complete this question by entering your answers in thetabs below.

  • Income Statement
  • Balance Sheet
  • Stmt of Cash Flows

Answer & Explanation Solved by verified expert
4.5 Ratings (801 Votes)

1. Income statement

MOTT Company
Income statement
For the year ended December 31,
Cash Revenue $42,000.00
Expenses
Interest expense $6,805.00
Net Income $35,195.00

2. Balance sheet

MOTT Company
Balance sheet (partial)
For the year ended December 31,
Assets
Current Assets
Cash (24,000+35,195) $59,195.00
Total Assets $59,195.00
Liabilities and stockholder's equity
Liabilities
Borrowings $24,000.00
Total Liabilities
Stockholder's equity
Retained Earnings $35,195.00
Total liabilities and stockholder's equity $59,195.00

3.Statement of Cash Flows

MOTT Company
Statement of Cash Flows
For the year ended December 31
Cash flows from operating activities
Cash revenue earned $42,000.00
Net cash flow from operating Activities $42,000.00
Cash flow from Investing activiites
Cash flow from finaning activities
Amount borrowed during year $132,000.00
Amount repaid during during $(108,000.00)
Interest paid during year $(6,805.00)
Net cash flow from Financing Activities $17,195.00
Net change in cash $59,195.00
Beginning cash balance
Ending cash balance $59,195.00

Workings:

1.calulation of interest

Month Amount borrowed/(repaid) Oustanding Amount Prime rate for month applicable rate Interest amount
January $75,000.00 $75,000.00 7% 8% $500.00
Feburary $57,000.00 $132,000.00 7% 8% $880.00
March $(50,000.00) $82,000.00 8% 9% $615.00
april-october $82,000.00 8% 9% $4,305.00
november $(36,000.00) $46,000.00 8% 9% $345.00
december $(22,000.00) $24,000.00 7% 8% $160.00
Total Interest $6,805.00

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Finance
1.2K views

Scana Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease...

Chemistry
1.2K views

Calculate the percent ionization of arsenous acid (H3AsO3) in solutions of each of the following concentrations (Ka...

Programming
1.2K views

A set of processes along with their burst time in milliseconds is given below. The processes...

Physics
1.2K views

3 18 sec 4 9 sec A coin is released inside a lift at a...

Geometry
1.2K views

83 10A Several three dimensional figures are shown B Cube C Cylinder D Pyramid If...

Algebra
1.2K views

1 The diagram shows a rhombus ABCD BE is an extension of AB such that...

Algebra
1.2K views

12 2 Determine the quadrant in which an angle 0 lies if 11 1st quadrant...

Accounting
1.2K views

Journalize the following, assuming a 360-day year is used for interest computations: ...

Accounting
1.2K views

The Bradford Company...

Accounting
1.2K views

I updated it can someone slovenit for me please answer it ...

Accounting
1.2K views

Given the following information for Grumpy Cat Incorporated, prepare their statement of cash flows for...

Finance
1.2K views

Problem 4 (6 points) IDX Technologies is a privately held developer of advanced security systems...