Question

Journal Entries (Note Issued, Renewed, and Paid) May 1 Purchased $5,000 worth of equipment from a supplier on account. June 1 Issued a $5,000, 30-day, 6% note in payment of the account payable. July 1 Paid $500 cash plus interest to the supplier, extending the note for 30 days from July 1. 31 Paid the note in full. Aug. 10 Issued a $3,500, 60-day, 7% note to a supplier for purchase of merchandise. Prepare general journal entries for the transactions. Assume 360 days in a year. Page: 1 DOC. POST. DATE ACCOUNT TITLE NO. REF. DEBIT CREDIT 20-- May 1 1 1 2 2 3 UwN 4 Jun. 1 5 6 6 7 Jul 1 7 . 8 8

Answer 1

Date	Description	Debit Amount ($)	Credit Amount ($)	Explanation
May 01	Equipment A/c                         Dr              To Accounts Payable A/c	5000	5000	To Record Asset Purchased on Credit basis
June 01	Account Payable A/c            Dr               To 6% Note Payable A/c	5000	5000	To record the issue of note to the creditor
July 01	Renewal Charges A/c            Dr Interest Expense A/c              Dr               To Cash A/c	500 25	525	To record renewal charges of note and interest paid Interest = 5000*6%*30/360 =25 (June 01 to July 01=30days)
July 31	6% Note Payable A/c            Dr Interest Expense A/c             Dr               To Cash A/c	5000 25	5000	To record Settlement of note and interest Interest = 5000*6%*30/360 =25 (July 01 to July 31=30days)
Aug 10	Inventory (or) Purchases A/c    Dr                 To 7% Note payable	3500	3500	To record Inventory purchases by issuing a note to supplier

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