At 30 June 20X4 a company had $2m 10% loan notes in issue, interest being paid half-yearly on 30 June and 31 December.
On 30 September 20X4 the company redeemed $500,000 of these loan notes at par, paying interest due to that date.
On 1 April 20X5 the company issued $1,000,000 9% loan notes, interest payable half-yearly on 31 March and 30 September.
What figure should appear in the company’s statement of profit or loss for interest payable in the year ended 30 June 20X5?
Answer
| $ | ||
| July – September | 2,000,000 x 10% x 3/12 | 50,000 |
| October – June | 1,500,000 x 10% x 6/12 | 112,500 |
| April – June | 1,000,000 x 9% x 3/12 | 22,500 |
| Interest Expense | 185,000 | |
Journal Entry
30 September 20X4
Dr. Loan………………………………………………..500,000
Dr. Interest Expense……………………………….50,000
Cr. Cash…………………………………………………………………550,000
1 April 20X5
Dr. Cash………………………………………………1,000,000
Cr. Loan……………………………………………………………..….1,000,000
30 June
Dr. Interest Expense (112,500+22,500)..135,000
Cr. Cash……………………………………………………………………112,000
Cr. Accrued Interest…………………………………………………..22,500