On November 1, 2018, Arch Services issued $313,000 of eight-year bonds with a stated rate of 12% at par. Interest payments occur each April 30 and October 31. On December 31, 2018, Arch made an adjusting entry to accrue interest at year-end. What is the amount of Interest Expense that will be recorded on December 31, 2018? (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

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Business

Milton Wood

9 June, 17:15

On November 1, 2018, Arch Services issued $313,000 of eight-year bonds with a stated rate of 12% at par. Interest payments occur each April 30 and October 31. On December 31, 2018, Arch made an adjusting entry to accrue interest at year-end. What is the amount of Interest Expense that will be recorded on December 31, 2018? (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

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Hudson Bolton · Answer 1

Interest Expense 6,260

Interest Payable 6,260

Explanation:

face value 313,000

issued at 313,000

From October 31th to December 31th

2 months of interest has been accrued

rate = 12% annual

12% divided by 12 = 1% monthly rate

then 1% times 2 = 2% rate for the period.

Now we calculate:

313,000 x 2% = 313,000 x 0.02 = 6,260