Question

Lily Inc. issues a $800,0

00, 60

-

day, 6% note to Rose Inc. for merchandise

inventory.

Instructions:

a) Journalize Lily Inc.’s entries to record:

1.

The issuance of the note.

2.

The payment of the note at maturity

b) Journalize Rose Inc.’s entries to record:

1. The receipt of the note.

2. The receipt of the payment of the note at maturity.

Answer 1

a) Journalize Lily Inc.’s entries to record:

Date	account and explanation	debit	credit
	Merchandise inventory	800000
	Notes payable		800000
	(To record note payable)
	Notes payable	800000
	Interest expense (800000*6%*60/360)	8000
	Cash		808000
	(To record payment of note)

b) Journalize Rose Inc.’s entries to record:

Date	account and explanation	debit	credit
	Notes receivable	800000
	Sales revenue		800000
	(To record note)
	Cash	808000
	Notes receivable		800000
	Interest revenue		8000
	(To record payment received)