Question

On May 1, Buckets Corp., Inc., a sports equipment firm, bought inventory by issuing a $500,000 noninterest-bearing note due in six months. Companies with similar risk to Buckets Corp. would be charged an annual market rate of 8%.

Required (Please put Dr in front of your debits and Cr in front of your credits, else it is hard to see what is a debit or credit in the d2L output):

1. Record the journal entry for the purchase of the inventory
2. Record the journal entry for the accrued interest
3. Record the journal entry for the payment of the inventory

Answer 1

1)	Dr. Inventory	$      480,769.23		=500000/1.04
	Cr. Note Payable		$      480,769.23
	To record purchase of inventory
2)	Dr. Interest Expense	$        19,230.77		=480769.23*4%
	Cr. Note Payable		$        19,230.77
	To record interest accrual
3)	Dr. Note Payable	$      500,000.00
	Cr. Cash		$      500,000.00
	To record payment for inventory
	As it’s a six month note have considered 4% rate to find the present value of note.