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E10-5A Martin Company

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EXERCISE 10–5A Accounting for a Line of Credit
Martin Company has a line of credit with Federal Bank. Casper can borrow up to $600,000 at any time
over the course of the 2013 calendar year. The following table shows the prime rate expressed as an annual
percentage along with the amounts borrowed and repaid during the first four months of 2013.
Martin 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, Casper pays 5%
(3 percent + 2percent) annual interest on $90,000 for the month of January.

Month Amount Borrowed Prime Rate for the Month %
January  90,000 3%
February  50,000 3.5%
March  (30,000) 4.00%
April  20,000 4.5%

Provide all journal entries pertaining to Casper’s line of credit for the first four months of 2013.

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