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 an 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

$3,003

Step-by-step explanation:

According to the question, Maverick has a fiscal year at the end of February, which means that an adjusting entry will include 2 months (January and February-Year 1) relating to the month of interest payment i.e. 6th month (June 30, Year 1)

Formula:

Interest expense = effective interest (for 1st semiannual period) × time period covered by adjusting entry

Interest expense = 9009 × 2/6

Interest expense = 3003$