Question

OS Environmental provides cost-effective solutions for managing regulatory requirements and environmental needs specific to the airline industry. Assume that on July 1 the company issues a one-year note for the amount of $5.0 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: (Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Answer 1

December 31 $300,000

September 30 $125,000

October 31 $ 150,000

January 31 $ 175,000

Step-by-step explanation:

Calculation to determine the amount of interest expense that should be recorded in a year-end adjusting entry

Calculation for December 31 Interest expense at interest rate of 12 %

Interest expense=$ 5,000,000 × (12/100) × (6 /12)

Interest expense=$5,000,000 × 0.12 × 0.5

Interest expense= $ 300,000

Calculation for September 30 Interest expense at interest rate of 10 %

Interest expense=$5,000 000 × (10/100) × (3/12)

Interest expense=$5,000 000 × 0.10 × 0.25

Interest expense= $ 125,000

Calculation for October 30 Interest expense at interest rate of 9%

Interest expense=$5,000 000 × (9/100) × (4/12)

Interest expense=$5,000 000 × 0.09 × 0.33

Interest expense= $ 150,000

Calculation for January 31 Interest expense at interest rate of 6%

Interest expense= $5,000 000 × (6/100) × (7/12)

Interest expense=$5,000 000 × 0.06 × 0.583

Interest expense= $ 175,000

Therefore the amount of interest expense that should be recorded in a year-end adjusting entry are:

Interest rate Fiscal year-end Interest expense

12% December 31 =$300,000

10% September 30 =$125,000

9% October 31 =$150,000

6% January 31 =$175,000