Question

1. Rachel was recently hired by Moncton Express Inc (MEI) to assist its payable clerk in bringing the accounts up to date. Rachel was asked to record the following transactions:

August 15: MEI purchased a new inventory monitoring system. MEI issued a $6,000 non-interest bearing note payable, due on October 15.

August 18: MEI borrowed $10,000 from the bank in the form of a demand note. MEI authorizes the bank to take the interest payments from its bank account. Interest is payable on the last day of each month at 4% per annum.

August 21: MEI purchased $8,000 of inventory, plus HST, on account. The terms offered are 3/10, net 45.

September 20: MEI purchased a waste management system. MEI issues an $8,000, non-interest bearing note payable due in one year.

September 23: MEI purchases $3,000 of inventory, plus HST, on account. The terms offered are 3/10, net 45.

September 24: Rachel pays the August 21 and September 23 invoices.

September 30: Rachel accrues for unbilled utilities totalling $1,700.

Other information:

• MEI uses the gross method to record accounts payable
• MEI’s year-end is December 31, and interim statements are normally prepared on a monthly basis.
• MEI’s latest interim statements are for the month ended July 31. The necessary accruals were made at that time, except that MEI only records depreciation expense at year-end.
• The market rate of interest for MEI’s short-term borrowings is 5%.

Required:

Prepare journal entries to record the documented events and the necessary accruals for the months of August and September.   Calculate interest accruals based on the number of days, rather than months. Round your answers to the nearest dollar.

Answer 1

As per questions requirement, following are the list of journal entries to be record for the month of August & September:-

	Journal Entries:-
Date	Particulars	Dr	Cr
15-Aug	Intangible Assets	$    6,000
	To Notes Payable due on 15 Oct		$    6,000
	(Being inventory management system purchased &
	non-interest bearing note payable issued, due on 15 Oct.)
18-Aug	Bank	$ 10,000
	To Demand Note		$ 10,000
	(Being demand note borrowed from bank @4% interest
	payable at the end of month.)
21-Aug	Inventory	$    8,000
	HST	$        800
	To Account Payable		$    8,800
	(Being inventory purchased at term offered 3/10, net 45.)
31-Aug	Interest Expenses	$          15
	To Bank		$          15
	(Being interest on demand note charged
	by bank for the month of Aug)
20-Sep	Intangible Assets	$    8,000
	To Notes Payable due in one year		$    8,000
	(Being waste management system purchased &
	non-interest bearing note payable issued, due in one year.)
23-Sep	Inventory	$    3,000
	HST	$        300
	To Account Payable		$    3,300
	(Being inventory purchased at term offered 3/10, net 45.)
24-Sep	Account Payable	$    8,800
	Account Payable	$    3,201
	To Bank		$ 12,001
	(Being payment made for inventory purchased on
	21 Aug & 23 Sep as per the term offered.)
30-Sep	Utility Expenses	$    1,700
	To Expenses Payable		$    1,700
	(Being un-billed utility expenses booked for Sep.)
30-Sep	Interest Expenses	$          33
	To Bank		$          33
	(Being interest on demand note charged
	by bank for the month of Sep)

Following are the supporting calculations:-

Calculation of Interest on money borrowed from Bank:-
Money borrowed		$        10,000
Rate of Interest		4%
Date of money borrowed		18-Aug
Days in Aug		14
Days in Sep		30
Days in year		365
Interest as on 31 Aug		$                15
Interest as on 30 Sep		$                33
Calculation of amount & discount payable to account payable:-
Term offered	3/10, Net 45
		10 Days date	Payment made on	Discount Amount	Amount need to be pay
Account Payable on 21 Aug	$                   8,800	31-Aug	24-Sep	$           -	$                8,800
Account Payable on 23 Sep	$                   3,300	3-Oct	24-Sep	$          99	$                3,201

Assumption: We have assumed HST @10% for the entries