Explanation:
a. The journal entries are as follows:
1. Purchase A/c Dr $52,000
To Account payable A/c $52,000
(Being the purchase of inventory is recorded)
2. Account payable A/c $52,000
To Notes payable A/c
(Being the payment is done via note payable)
3. Cash A/c Dr $52,000
Discount on Note payable A/c Dr $4,400
To Note payable A/c $56,400
(Being the borrowed amount is recorded)
b.
Interest expense A/c Dr $1,040
To Interest payable A/c $1,040
(Being the interest expense is recorded)
The computation is shown below:
= $52,000 × 8% × 3 months ÷ 12 months
= $1,040
Interest expense A/c Dr $1,040 ($4,160 × 3 months ÷ 12 months)
To Discount on notes payable A/c $1,040
(Being the interest expense is recorded)
c. Now the total net liability is
i. For the interest-bearing note
= Note payable + interest payable
= $52,000 + $1,040
= $53,040
ii. For zero-interest-bearing note
= $56,400 - $3,120 ($4,160 - 1,040)
= $53,280
