Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2 Colson Company has a line of credit with Federal Bank. Colson can borrow up to $486,500 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 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, Colson pays 7.00 percent ( 4.00 percent +3.00 percent) annual interest on $81,800 for the month of January. Required: a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar. a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar. b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar. Exercise 10-14A (Algo) Straight-line amortization of a bond discount LO 104 Diaz Company issued bonds with a $112,000 face value on January 1, Year 1. The bonds had a 8 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31 , Year 1 . The bonds were issued at 98 . The straight-line method is used for amortization. Required a. Use a financial statements model like the one shown next to demonstrate how (1) the January 1, Year 1, bond issue and (2) the December 31, Year 1, recognition of interest expense, including the amortization of the discount and the cash payment, affect the company's financial statements. Note: Use + for increase or - for decrease. In the Statement of Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, and FA for financing activity. Not all cells require input. b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31 , Year 1 . c. Determine the amount of interest expense reported on the Year 1 income statement. d. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31 , Year 2 . e. Determine the amount of interest expense reported on the Year 2 income statement
