Consolidated Industries Borrows at Prime Plus 1

question 159

Multiple Choice

Consolidated Industries borrows at prime plus 1.5% on its line of credit.The line requires a 15% compensating balance.If prime rate is 9%,what is the nominal APR of the line of credit?

• A) 9.0%
• B) 6.0%
• C) 10.6%
• D) 12.4%

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Definitions:

Full-cost Method

Accounting practice where all direct and indirect fixed and variable costs are allocated to inventory until the products are sold.

IFRS

A set of accounting standards named International Financial Reporting Standards, developed globally by the International Accounting Standards Board (IASB).

Expensed

Refers to the accounting practice of recognizing a cost as an expense in the income statement in the period it is incurred.

Maintenance

The process of preserving a condition or situation or the process of keeping something in working order by regularly servicing it.