Problem

Effect of a line of credit on financial statementsSong Company has a line of credit with S...

Effect of a line of credit on financial statements

Song Company has a line of credit with State Bank. Song can borrow up to $200,000 at any time over the course of the 2012 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2012. Song 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, Song 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	50,000	6
March	(40,000)	7
April through October	No change	No change
November	(80,000)	6
December	(20,000)	5

Required

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, a — for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).