<u>Solution and Explanation:</u>
<u>The calculation of determining the interest expense that must be recorded in a year end adjusting entry is as follows;
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Interest Year Issue Months Note Value Interest
Rate End date Expense
11% Dec-31 Jul-01 6 5,400,000 297,000
9% Sep-30 Jul-01 3 5,400,000 121,500
10% Oct-31 Jul-01 4 5,400,000 180,000
7% Jan-31 Jul-01 7 5,400,000 220,500
The following formula is to be used while calculating the interest expense
(Note Face Value * interest Rate * time period)/12
