Question

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 2018 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2018. Boyd 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, 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 2018.

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 2018?

BOYD CO. Horizontal Statements Model Date Balance Sheet Income Statement Statement of Cash Flow Assets = Liabilities + Equity Revenue – Expense = Net Income 1/1 = + – = 1/31 = + – = 2/1 = + – = 2/28 = + – = 3/1 = + – = 3/31 = + – = 4/30 = + – = 5/31 = + – = 6/30 = + – = 7/31 = + – = 8/31 = + – = 9/30 = + – = 10/31 = + – = 11/1 = + – = 11/30 = + – = 12/1 = + – = 12/31 = + – =

NOTE: For answers Assets and Statement of cash flow second tab are answered with FA, IA, or OA. The rest of the tabs are answered with +, -, or +/-

Answer 1

Date	Balance Sheet					income Statement					Statement of Cash Flow
	Assets	=	Liabilities	+	Equity	Revenue	-	Expenses	=	Net Income
	45,000	=		+	45,000	45,000	-		=	45,000	OA
01-Jan	1,00,000	=	1,00,000	+	-	-	-	-	=	-	FA
Jan-31	1,44,417	=	1,00,000	+	44,417	-	-	583	=	-583	FA
01-Feb	70,000	=	70,000	+	-	-	-		=	-	FA
28-Feb	2,13,283	=	1,70,000	+	43,283	-	-	1,133	=	-1,133	FA
01-Mar	-30,000	=	-30,000	+	-	-	-		=	-	FA
Mar-31	1,82,233	=	1,40,000	+	42,233	-	-	1,050	=	-1,050	FA
01-Apr	-	=	-	+	-	-	-		=	-	FA
30-Apr	1,81,183	=	1,40,000	+	41,183	-	-	1,050	=	-1,050	FA
01-May	-	=	-	+	-	-	-		=	-	FA
31-May	1,80,133	=	1,40,000	+	40,133	-	-	1,050	=	-1,050	FA
01-Jun	-	=	-	+	-	-	-		=	-	FA
30-Jun	1,79,083	=	1,40,000	+	39,083	-	-	1,050	=	-1,050	FA
01-Jul	-	=	-	+	-	-	-		=	-	FA
31-Jul	1,78,033	=	1,40,000	+	38,033	-	-	1,050	=	-1,050	FA
01-Aug	-	=	-	+	-	-	-		=	-	FA
31-Aug	1,76,983	=	1,40,000	+	36,983	-	-	1,050	=	-1,050	FA
01-Sep	-	=	-	+	-	-	-		=	-	FA
30-Sep	1,75,933	=	1,40,000	+	35,933	-	-	1,050	=	-1,050	FA
01-Oct	-	=	-	+	-	-	-		=	-	FA
31-Oct	1,74,883	=	1,40,000	+	34,883	-	-	1,050	=	-1,050	FA
01-Nov	-50,000	=	-50,000	+	-	-	-		=	-	FA
30-Nov	1,24,283	=	90,000	+	34,283	-	-	600	=	-600	FA
01-Dec	-40,000	=	-40,000	+	-	-	-		=	-	FA
31-Dec	83,992	=	50,000	+	33,992	-	-	292	=	-292	FA
Ending Balance	83992		50000		33992	45000		11,008		33,992

Since date of revenue earned is not mentioned it has been taken on first day

Interest calculation
Jan-31	583	=100000*(5+2)%/12
28-Feb	1,133	=170000*(6+2)%/12
Mar-31	1,050	=140000*(7+2)%/12
30-Apr	1,050	=140000*(7+2)%/12
31-May	1,050	=140000*(7+2)%/12
30-Jun	1,050	=140000*(7+2)%/12
31-Jul	1,050	=140000*(7+2)%/12
31-Aug	1,050	=140000*(7+2)%/12
30-Sep	1,050	=140000*(7+2)%/12
31-Oct	1,050	=140000*(7+2)%/12
30-Nov	600	=90000*(6+2)%/12
31-Dec	292	=50000*(5+2)%/12

2. Total Interest expense paid for 2018 = $11008.33