Question

On November 1, 2014, Archangel Services issued $300,000 of 8-year bonds with a stated rate of 9% at par. The bonds make semiannual payments on April 30 and October 31. At December 31, 2014, Archangel made an adjusting entry to accrue interest a year-end. How much Interest Expense will be recorded at December 31, 2014?

Answer 1

$4,500

Step-by-step explanation:

The computation of the interest expense is shown below:

= Bond amount × rate of interest × number of months ÷ total number of months in a year

= $300,000 × 9% × 2 months ÷ 12 months

= $4,500

We simply multiplied with the bond amount, interest rate, and the given number of months to find out the accrued interest

And, the two month is calculated from November 1 to December 31