Singer Company has a line of credit with United Bank. Singer can borrow up to $400,000 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 three months of Year 1. Singer agreed to pay interest at an annual rate equal to 2 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. The interest rate is applied to the outstanding monthly balance. For example, Singer pays 6.5 percent (4.5 percent + 2 percent) annual interest on $140,000 for the month of February.

Required
a. Compute the amount of interest that Singer will pay on the line of credit for the three months of Year 1. Round answers to nearest whole dollar.
b. Compute the amount of Singer’s liability at the end of each of the first three months.

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Amount Borrowed or (Repald) Prime Rate for the Month 4.0% 4.5 4.0 Month $80,000 January February March (20,000)