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.

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Business

Maxim Mann

31 December, 20:23

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.

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Casey Hunt · Answer 1

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