Final answer:
The student's question involves making journal entries for transactions with notes payable and preparing year-end adjusting entries for accrued interest. Initial entries record inventory purchases, and adjusting entries account for interest on the notes payable based on the time the notes have been outstanding.
Step-by-step explanation:
The student's question pertains to creating journal entries for White Wolf Inc.'s transactions involving notes payable and preparing adjusting entries for the accrual of interest. The first step is to record the purchase of inventory through notes payable. For the transaction dated September 1, an 8-month 6% note payable was used to purchase inventory worth $48,000, and on November 1, a 1-year 7% note payable was utilized for a $30,000 inventory purchase.
Here are the initial journal entries:
- Sept. 1: Inventory: $48,000; Notes Payable: $48,000
- Nov. 1: Inventory: $30,000; Notes Payable: $30,000
For the adjusting entries as of December 31, interest needs to be accounted for. The interest for the September 1 note for 4 months (Sept. to Dec.) at 6% annual interest on $48,000 is calculated as:
Interest = Principal x Rate x Time = $48,000 x 6% x (4/12) = $960
For the November 1 note, the interest for 2 months (Nov. to Dec.) at 7% annual interest on $30,000 is:
Interest = Principal x Rate x Time = $30,000 x 7% x (2/12) = $350
The corresponding adjusting entries would be:
- Interest Expense $960 / Interest Payable $960
- Interest Expense: $350 / Interest Payable: $350
White Wolf Inc. needs to record these entries accurately to reflect the state of its finances properly and comply with the principles of accrual accounting.