On July 1, Atlantic Cruise Lines issues a $100,000, eight-month, 7% note. Interest is payable at maturity. What is the amount of
1 answer:
The answer is $3,500.
Given,
On July 1, Atlantic Cruise Lines issues a $100,000, eight-month, 7% note.
Interest is payable at maturity.
Maturity date = July 1 + 8 months = March 1
Total interest incurred on maturity = Value of the note × Interest rate × time period
=
= $4,666.67
Number of months as on December 31 = 6 months
Therefore, the amount of interest expense that the company would record in a year-end adjustment on December 31 is given by:
Interest expense = Total interest incurred on maturity × no. of months as on December 31
= $4,666.67 ×
= $3,500
Hence, the amount of interest expense that the company would record in a year-end adjusting entry on December 31 is $3,500
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