Final answer:
Journal entries are made to record inventory purchases using notes payable, and adjusting journal entries are needed to record accrued interest expense at year-end. Four months of interest are accrued for the first note and two months for the second note.
Step-by-step explanation:
The transactions involving White Wolf Inc.'s notes payable and inventory purchases are recorded with journal entries. When the company purchases inventory by signing a note payable, it increases both the inventory and note payable accounts on the balance sheet.
On September 1, the company purchases $48,000 in inventory with an 8-month, 6% note, and on November 1, it purchases an additional $30,000 in inventory with a 1-year, 7% note.
For the September 1 transaction, the journal entry is:
- Inventory $48,000
- Notes Payable: $48,000
For the November 1 transaction, the journal entry is:
- Inventory $30,000
- Notes Payable: $30,000
To record interest expense for the year ending December 31, we need to account for the accrued interest on both notes. Since the company uses month-based calculations to simplify, we count four months of interest on the first note (September to December) and two months on the second note (November to December).
The accrued interest and the adjusting entries for the interest accrued by year-end would be calculated as follows:
Interest on the first note: $48,000 × 6% × (4/12) = $960
Interest on the second note: $30,000 × 7% × (2/12) = $350
Adjusting journal entries for December 31 would be:
- Interest Expense $960
- Interest Payable $960
- Interest Expense $350
- Interest Payable $350