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    Accounting for short-term Notes payable and its' interest

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    Ferdie Sports Authority purchased inventory costing $4,000 by signing an 8% short-term note payable. The purchase occurred on September 30, 20X0. Ferdie pays annual interest each year on September 30. Journalize the company's (a) purchase of inventory, (b) accrual of interest expense on June 30, 20X1, which is the year-end, and (c) payment of the note plus interest on September 30, 20X1. (Round your answers to the nearest whole number.)

    1. Show what the company would report on its Balance Sheet at June 30, 20X1, and on its Income Statement for the year ended on that date.
    2. What single item will the financial statements for the year ended June 30, 20X2, report? Identify the financial statement, the item, and its amount.

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    Solution Preview

    Journal entries:
    (a) Sep.30, 20X0 Inventory [Debit] $4,000
    . . . . . Notes payable [Credit] $4,000

    (b) Jun.30, 20X1 Interest expense [Debit] $240
    . . . . . Interest payable [Credit] $240
    [Working: Interest amount = ...

    Solution Summary

    The solution contains the journal entries that need to be recorded upon issuance of Notes payable and also upon accrual of interest expense, along with workings and explanation.