Question

On May 1 comma 2019May 1, 2019​, JasperJasper Company purchased inventory costing $ 95 comma 000$95,000 by signing aa 66​%, ​nine-month, short-term note payable. JasperJasper will pay the entire note​ (principal and​ interest) on the​ note's maturity date. Journalize the​ company's (a) purchase of​ inventory; and​ (b) accrual of interest on the note payable on November 31 comma 2019November 31, 2019. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Answer 1

(a) Journals to record the purchase of inventory:

Debit Inventory $95,000

Credit Note payable $95,000

(To record the purchase of inventory)

(b) Accrual of interest on the note payable on November 31, 2019:

Debit Interest expense $47,025

Credit Interest payable $47,025

(Total interest accrual on notes)

Step-by-step explanation:

Note receivable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

The interest expense on the notes is calculated as: Principal x Interest Rate x Time

In this case, the total interest expense is $95,000 x 66%/12 x 9 months = $47,025.

Monthly interest expense is $47,025 / 9 months = $5,225.

For accrual purpose, Jasper Company would be recording the following journals on a monthly basis before the actual cash payment:

Debit Interest expense $5,225

Credit Interest payable $5,225

(Monthly recognition of interest expense on notes)