Question

On June 30, 2021, Chu Industries issued 9-month notes in the amount of $730,000. Assume that interest is payable at maturity in the following three independent cases:

Required:
Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption: (Round your final answers to the nearest whole dollar amount.)

	Interest Rate Fiscal Year-End Interest Expense 1. 9% December 31 2. 6% August 31 3. 12% October 31

Answer 1

Interest rate Fiscal Year-End Interest Expense 9% December.31 $ 32,850 6% August.31 $ 7,300 12% October. 31 $ 29,200 Working Notes: 1 Interest Period = June 30 to December 31 = 6 Months Interest rate = 9% Interest Expense = $730,000*9%*6/12 = $32,850 2 Interest Period = June 30 to August 31 = 2 Months Interest rate = 6% Interest Expenses = $730,000*6%*2/12 = $7,300 3 Interest period = June 30 to October 31 = 4 Months Interest rate = 12% Interest expenses = $730,000*12%*4/12 = $29.200