Question

Question 6. Mott Company has a line of credit with Bay Bank. Mott can borrow up to $580,000 at any time over the course of the 2018 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2018. Mott agreed to pay interest at an annual rate equal to 1 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, Mott pays 6 percent (5 percent + 1 percent) annual interest on $78,000 for the month of January.

Month	Amount Borrowed or (Repaid)						Prime Rate for the Month, %
January		$	78,000					5
February			58,000					5
March			(52,000	)				6
April through October	No change						No change
November			(36,000	)				6
December			(28,000	)				5

Mott earned $43,000 of cash revenue during 2018.

b. Prepare an income statement, balance sheet, and statement of cash flows for 2018.

• ncome Statement
• Balance Sheet
• Stmt of Cash Flows

Prepare the income statement for 2018. (Round intermediate calculations and final answers to nearest whole dollar amount.)

income statement

	MOTT COMPANY Income Statement For the Year Ended December 31, 2018 Expenses

	MOTT COMPANY Balance Sheet As of December 31, 2018 Assets Total assets $0 Liabilities Total liabilities 0 Stockholders’ Equity Total stockholders’ equity 0 Total liabilities and stockholders’ equity $0

	MOTT COMPANY Statement of Cash Flows For the Year Ended December 31, 2018 Cash flows from operating activities: Net cash flow from operating activities $0 Cash flows from investing activities: Cash flows from financing activities: Net cash flow from financing activities 0 Net change in cash 0 Ending cash balance $0

Answer 1

Mott Company
Income Statement				Calculation of interest cost						Amount( in $)
For the year Ended December 31, 2018				Month	Loan taken	Loan repaid	Balance outstanding	Interest rate(prime rate plus 1%)	Interest cost formula	Interest cost
Income:-	Amount in ($)			January	78000	-	78000	6	H5*I5%	4680
Revenue earned	43000			February	58000	-	136000	6	(78000*6%)+(58000*6%*11/12)	7870
Total (A)	43000			March	136000	52000	84000	7	H7*I7%*10/12	4900
Expense less:-				April to October	-	-	84000	7	H8*I8%*9/12	4410
Interest cost	22520			November	-	36000	48000	7	H9*I9%*2/12	560
Total (B)	22520			December	-	28000	20000	6	H10*I10%*1/12	100
Net Surplus/( Deficit) (A-B)	20480			Total						22520
Balance Sheet
As at December 31,2018
Assets	Amount in ($)
Cash at bank	20000
Total assets	20000
Liabilities
Borrowings	20000
Total Liabilities	20000
Cash Flow statement
For the year ended December 31, 2018
	Amount in ($)
Cash flow from operating activities	0
Net cash flow from operating activities	0
Cash flow from investing activities	0
Cash flow from financing activities
Loan taken	136000
Loan repaid	-116000
Net cash flow from financing activities	20000
Net change in cash	20000
Opening cash balance	0
Ending cash balance	20000