Question

On August 1, 2019, The Cove at Mill Lake, Inc., purchased inventory costing $50,000 by signing a 6%, six-month, short-term note payable. The company will pay the entire note (principal and interest) on the note's maturity date. Read the requirements. Requirement 1. Journalize the company's purchase of inventory. (Record debits first, then credits. Exclude explanations from journal entries.) Journal Entry Accounts Date Debit Credit 2019 Aug 1 Requirement 2. Make the adjusting entry for accrual of interest on the note payable on December 31, 2019. (Record debits first, then credits. Exclude explanations from journal entries.)

Answer 1

1) Debit Credit Date Accounts $50,000 Aug. 1, 2019 Merchandise Inventory Note Payable $50,000 Debit 2) Credit Date Accounts $1,250 [$50,000 x 6% x 5/12] [5 months' interest is accrued] Dec. 31, 2019 Interest Expense $1,250 Interest Payable Balance Sheet (Partial) on Dec. 31, 2019 3) Account Amount Current Liabilities: Note Payable Interest Payable $50,000 $1,250 4) Debit Credit Date Accounts Feb. 1, 2020 Note Payable Interest Payable [Face value of the note payable] 000 $1,250 $250 [Interest accrued on Dec. 31, 2019] Interest Expense [$50,000 х 6% х 1/12] Cash $51,500