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Question: Sherlock Sports Authority purchased inventory costing $30,000 by signing a 4%,..........

18 Feb 2023,2:29 PM


Sherlock Sports Authority purchased inventory costing $30,000 by signing a 4%, short-term, one-year note payable. The purchase occurred on July 31, 2021. Sherlock pays annual interest each year on July 31. Journalize the company’s 


(a) Purchase of inventory;


(b) Accrual of interest expense on April 30, 2022, which is the company’s fiscal year-end;


(c) Payment of the note plus interest on July 31, 2022. (Round your answers to the nearest whole number.)


(d) Show what the company would report for liabilities on its balance sheet at April 30, 2022, and on its income statement for the year ended on that date.

Expert answer


(a) Purchase of inventory:


Inventory          30,000

Notes Payable      30,000


(a) Purchase of inventory:


Copy code

Inventory          30,000

Notes Payable      30,000

(b) Accrual of interest expense on April 30, 2022:


javascript

Copy code

Interest Expense   1,200

Interest Payable   1,200

    ($30,000 x 4% x 9/12 = $1,200)

(c) Payment of the note plus interest on July 31, 2022:


javascript

Copy code

Notes Payable      30,000

Interest Payable   1,200

Cash               31,200


    ($30,000 x 4% x 12/12 = $1,200)

(d) Liabilities on the balance sheet at April 30, 2022:


csharp

Copy code

Notes Payable      30,000

Interest Payable   1,200

    (Total liabilities: $31,200)

    

Interest expense on the income statement for the year ended on April 30, 2022:


Interest Expense   1,200


(a) Purchase of inventory:


Copy code

Inventory          30,000

Notes Payable      30,000

(b) Accrual of interest expense on April 30, 2022:


javascript

Copy code

Interest Expense   1,200

Interest Payable   1,200

    ($30,000 x 4% x 9/12 = $1,200)

(c) Payment of the note plus interest on July 31, 2022:


javascript

Copy code

Notes Payable      30,000

Interest Payable   1,200

Cash               31,200


    ($30,000 x 4% x 12/12 = $1,200)

(d) Liabilities on the balance sheet at April 30, 2022:


csharp

Copy code

Notes Payable      30,000

Interest Payable   1,200

    (Total liabilities: $31,200)

    

Interest expense on the income statement for the year ended on April 30, 2022:


Interest Expense   1,200


(a) Purchase of inventory:


Copy code

Inventory          30,000

Notes Payable      30,000

(b) Accrual of interest expense on April 30, 2022:


javascript

Copy code

Interest Expense   1,200

Interest Payable   1,200

    ($30,000 x 4% x 9/12 = $1,200)

(c) Payment of the note plus interest on July 31, 2022:


javascript

Copy code

Notes Payable      30,000

Interest Payable   1,200

Cash               31,200


    ($30,000 x 4% x 12/12 = $1,200)

(d) Liabilities on the balance sheet at April 30, 2022:


csharp

Copy code

Notes Payable      30,000

Interest Payable   1,200

    (Total liabilities: $31,200)

    

Interest expense on the income statement for the year ended on April 30, 2022:


Interest Expense   1,200



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