Question

The following are selected 20X2 transactions of Bishop Corporation.

Sept 1   Purchased inventory from Smith Company on account for $50,000. Smith records purchases gross and uses a periodic inventory system.

Oct 1    Issued a $50,000, 12-month, 8% interest-bearing note to Smith in payment of account.

Oct 1    Signed a zero-interest bearing 12-month note for $54,000 from the Second Bank and received $50,000.

Required:

a. Prepare journal entries for the selected transactions above.

b. Prepare adjusting journal entries at December 31.

Answer 1

Date		Debit	Credit
	Part 1 Journal Entries
1-Sep	Purchases	50,000
	To Accounts Payable		50,000
1-Oct	Accounts Payable	50,000
	To Notes Payable		50,000
1-Oct	Cash	50,000
	Discount on Notes	4,000
	To Notes Payable		54,000
	Part 2 Adjusting Journal Entries
31-Dec	Interest Expense	1,000
	To Interest Payable		1,000
	(50000*8%*3/12)
31-Dec	Interest expense	1,000
	To Discount on Notes		1,000
	(4000/4*1)