Question

:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements

1. Journalize the company’s purchase of merchandise inventory on December 31, 2017.

2. Journalize the company’s accrual of interest expense on June 30, 2018, its fiscal year-end.

3. Journalize the company’s payment of the note plus interest on December 31, 2018

Short answer

1. Merchandise account Debit $13,000 and Note payable account credit $13,000
2. Interest account Debit $585 and interest payable account credit $585.
3. Note payable, Interest expense, Interest payable account Debit $14,170 and Cash account Credit $14,170.

Step-by-step solution

Journal Entries

Date	Particulars	Debit	Credit
Dec 31, 2017	Merchandise inventory	$13,000
	Note payable		$13,000
	(To record purchased merchandise inventory in exchange for 9% note payable.)

Journal Entries

Date	Particulars	Debit	credit
June 30, 2018	Interest expense	$585
	Interest payable		$585
	(To record accrued interest expense at the fiscal year-end.)

Journal Entries

Date	Particulars	Debit	Credit
Dec 31, 2018	Note payable	$13,000
	Interest expense	$585
	Interest payable	$585
	Cash		$14,170
	(To record paid note and interest at maturity.)