Question

On January 1, Year 1, Maverick Company sold bonds that pay interest semiannually on June 30 and December 31. Maverick has a fiscal year-end of February 28. The amortization schedule for these bonds shows a cash payment of interest of $7,200 and effective interest of $9,009 relating to the interest payment that will be made on June 30, Year 1. What is the amount of interest expense that should be accrued by Maverick in an adjusting entry dated February 28, Year 1?

Answer 1

Answer:

$3,003

Explanation:

Interest expense = Effective interest for first interest period × Period of time covered by adjusting entry.

Therefore:

Interest expense = $9,009 × 2/6 = $3,003

The adjusting entry will record interest for the two-month period conservatively which includes January and February, Year 1 in which It will include a debit to Interest Expense in the amount of $3,003.

Hence,

Dr Interest Expenses $3,003

The amount of interest expense that should be accrued by Maverick in an adjusting entry dated February 28, Year 1 is

$3,003