Question

The following are selected 2017 transactions of Shamrock Corporation.
Sept. 1 Purchased inventory from Encino Company on account for $55,600. Shamrock records purchases gross and uses a periodic inventory system.
Oct. 1 Issued a $55,600, 12-month, 8% note to Encino in payment of account.
Oct. 1 Borrowed $55,600 from the Shore Bank by signing a 12-month, zero-interest-bearing $59,960 note.
Required:
Prepare journal entries for the selected transactions above.

Answer 1

Answer and Explanation:

The journal entries are shown below:

a.

On Sep-01

Purchases $55,600

        Accounts Payable  $55,600

(Being inventory is  purchased)

On Oct-01

Accounts Payable $55,600

          Notes Payable $55,600

(being note payable is issued)

On Oct-01

Cash $55,600

Discount on Notes Payable $4,360  

          Notes Payable $59,960

(Being amount is borrowed)

b    

On Dec-31

Interest Expense $1,112 ($55,600 × 8% × 3 ÷ 12)

           Interest Payable $1,112

(Being interest on the note is recorded)    

On Dec-31

Interest Expense $1,090 ($4,360 ÷ 12 × 3)

          Discount on Notes Payable $1,090

(Being discount on the note is recorded)