Question

Accounts and Notes Payable On February 15, Barbour Industries buys $800,000 of inventory on credit. On March 31, Barbour approaches its supplier because it cannot pay the $800,000. The supplier agrees to roll the amount into a note due on September 30 with 10% interest. Required: Prepare the necessary journal entries from February 15 through payment on September 30. If an amount box does not require an entry, leave it blank. Feb. 15 (Record purchase of inventory on credit) Mar. 31 (Record issuance of note to cover unpaid account payable) Sept. 30 (Record payment of note and interest)

Answer 1

Answer and Explanation:

The journal entries are shown below:

On Feb 15

Purchases     $800,000

      To Accounts payable    $800,000

(Being the purchase of inventory on credit is recorded)

On Mar 31

Accounts payable $800000

      To Notes payable  $800000

(Being the issuance of note is recorded)

On Sept 30

Notes payable    $800,000

Interest expense   $40,000

            To Cash  $840,000

(Being the payment of note and interest is recorded)

The interest expense is computed below:

= $800,000 ×  10% × 6 months  ÷ 12 months  

= $40,000

The six months is calculated from Mar 31 to Sep 30

Only these entries are passed