On July 1, 2018, Ross-Livermore Industries issued nine-month notes in the amount of $400 million.... Question: On July 1, 2018, Ross-Livermore Industries issued nine-month notes in the amount of$400 million. Interest is payable at maturity.

Required:

Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions:

 Interest Rate Fiscal Year-End 1. 12% December 31 2. 10% September 30 3. 9% October 31 4. 6% January 31

Interest Expense:

The expense to be considered for the period is computed by multiplying the face value of the note payable with the period and the periodic interest rate.

Determine the amount of interest expense that should be recorded in a year-end adjusting entry as follows: -

Computation for Interest Expense (in million)
Assumptions Interest Rate (a) Fiscal Year-End Period (in months) (b) Interest Expense (a x b/12 x 400 million)
1 12% Dec-31 6 $24 2 10% Sep-30 3$10
3 9% Oct-31 2 $6 4 6% Jan-31 7$14

How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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