Exercise 7-12A (Static) Effect of a line of credit on financial statements LO 7-6

Boyd Company has a line of credit with State Bank. Boyd can borrow up to $400,000 at any time over the course of the calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during the year. Boyd agreed to pay interest at an annual rate equal to 2 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, Boyd pays 7 percent (5 percent + 2 percent) annual interest on $100,000 for the month of January.

Month		Amount Borrowed or (Repaid)		Prime Rate for the Month
January		$	100,000				5	%
February			70,000				6
March			(30,000	)			7
April through October		No change		No change
November			(50,000	)			6
December			(40,000	)			5

Boyd earned $45,000 of cash revenue during the year.

Required

1. Show the effects of these transactions on the financial statements using a horizontal statements model like the one shown here. Use a + to indicate increase, for decrease, and if the element is not affected, leave the cell blank. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).
2. What is the total amount of interest expense paid for the year?