Franklin Company Obtained a $160,000 Line of Credit from the State

question 50

Multiple Choice

Franklin Company obtained a $160,000 line of credit from the State Bank on January 1, Year 1. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of Year 1 are shown in the following table. Assume that Franklin borrows or repays on the first day of each month. Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses. Based on this information alone, the amount of interest expense recognized in March would be closest to:

• A) $232.
• B) $262.
• C) $292.
• D) $408.

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Definitions:

Lead Time

Lead time is the duration between the initiation and completion of a process, often used in reference to the time taken from ordering to receiving goods.

ROP

Refers to Reorder Point, a inventory management technique indicating the minimum level before a new order must be placed.

Continuous Review Policies

Inventory management strategies that monitor inventory levels continuously to decide when to reorder.

Safety Inventory

Additional stock kept in reserve to protect against variability in demand or supply chain disruptions.