Question

June:

1 James Co. purchased merchandise on account from O’Leary Co., $90,000, terms n/30. The cost of merchandise sold was $54,000.
30 James Co. issued a 60-day, 5% note for $90,000 on account.
Aug. 29 James Co. paid the amount due.

Required:
Journalize the above transaction, 90,000 assuming a 360-day year is used for interest calculations.

Answer 1

James Co. (Borrower)

June 1

Debit Merchandise Inventory $90,000

Credit Accounts Payable $90,000

June 30

Debit Accounts Payable $90,000

Credit Notes Payable $90,000

August 29

Debit Notes Payable $90,000

Debit Interest on Notes $750

Credit Cash Account $90,750

O’Leary Co. (Creditor)

June 1

Dr Accounts Receivable $90,000

Cr Sales $90,000

30

Dr Notes Receivable $90,000

Cr Accounts Receivable $90,000

Aug. 29

Dr Cash $90,750

Cr Notes Receivable $90,000

Cr Interest Revenue $750

Step-by-step explanation:

Preparation of the journal entries

James Co. (Borrower)

June 1

Debit Merchandise Inventory $90,000

Credit Accounts Payable $90,000

(To record the purchase of merchandise on account)

June 30

Debit Accounts Payable $90,000

Credit Notes Payable $90,000

(To record the issue of a 60-day, 5% note)

August 29

Debit Notes Payable $90,000

Debit Interest on Notes $750

($90,000 * 5% * 60/360)

Credit Cash Account $90,750

($90,000+$750)

(To record the payment of the notes plus interest)

O’Leary Co. (Creditor)

June 1

Dr Accounts Receivable $90,000

Cr Sales $90,000

30

Dr Notes Receivable $90,000

Cr Accounts Receivable $90,000

Aug. 29

Dr Cash $90,750

($90,000+$750)

Cr Notes Receivable $90,000

Cr Interest Revenue $750

($90,000 * 5% * 60/360)