Question

Barton Company has a line of credit with Sea View Bank. Barton can borrow up to $200,000 at any time over the course of Year 2. The following table shows the interest rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 2. 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.

Borrowed (Repaid)Interest RateJanuary$25,0006%February(5,000)9%March20,0009%
How much Interest Expense does Barton incur for February?
A. $1,800
B. $450
C. $150
D. $300

Answer 1

The interest expense for February is $1,500.

Step-by-step explanation:

To calculate the interest expense for February, we need to calculate the interest for the outstanding balance at the end of January. The interest is calculated by multiplying the outstanding balance by the interest rate. In this case, the outstanding balance at the end of January is $25,000 and the interest rate is 6%. So, the interest expense for February is $25,000 * 6% = $1,500.