ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Dunmore Co issued $500,000 of 6% loan notes on 1 October 20X4. Interest is paid half-yearly in arrears on 31 March and 30 September. The year end is 31 December 20X4. What is the interest accrual at 31 December 20X4?
The accrual is $7,500. Annual interest on $500,000 at 6% is $30,000, and three months have elapsed from 1 October to 31 December with no payment yet made, so 3/12 of $30,000 is accrued.
- A$7,500Correct
- B$15,000
- C$30,000
- D$3,750
Explanation
Annual interest is 500,000 x 6% = $30,000. For three months, 30,000 x 3/12 = $7,500, which is accrued as no payment date has occurred. $15,000 is a full half-year, which is wrong because only three months have passed.
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