Question

Ivanhoe Sports Authority purchased inventory costing $ 26 comma 000 by signing a 6​%, ​six-month, short-term note payable. The purchase occurred on March 1 comma 2018. Ivanhoe will pay the entire note​ (principal and​ interest) on the​ note's maturity date of September ​1, 2018. Journalize the​ company's (a) purchase of​ inventory; and​ (b) payment of the note plus interest on September 1 comma 2018.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

a. Inventory A/c Dr $26,000

       To Notes payable A/c $26,000

(Being inventory is purchased for signing the short term notes payable)

b. Interest expense A/c Dr $780

  Notes payable A/c Dr $26,000

               To Cash A/c $                       $26,780

(Being cash is paid on maturity)

The interest expense is computed below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $26,000 × 6% × (6 months ÷ 12 months)

= $780

The 6 months is calculated from March 1 to September 1