Question

On March 1, 2017, Parnevik Company sold goods to Goosen Inc. for \(660,000 in exchange for a 5-year, zerointerest-bearing note in the face amount of \)1,062,937 (an inputed rate of 10%). The goods have an inventory cost on Parnevik’s books of $400,000. Prepare the journal entries for Parnevik on (a) March 1, 2017, and (b) December 31, 2017.

Short answer

Interest for 10 months is $ 55,000

Step-by-step solution

Meaning of Inventory Cost

Inventory costs include all costs connected with an order, keeping, and maintaining a product-based business's inventory or stock levels. Carrying costs, ordering costs, and stockout costs are three types of inventory expenses that are typically split down.

Journal entries

Date	Particulars	Debit ($)	Credit ($)
March 1, 2017	Note receivables a/c Dr.	1,062,937
	To Sales revenue a/c		660,000
	To Premium on note receivables a/c		402,937
March 1, 2017	Cost of goods sold a/c Dr.	400,000
	To Inventory a/c		400,000
December 31, 2017	Premium on note receivable a/c Dr.	55,000
	To Interest a/c		55,000

Working Note:

Sales Revenue = $660,000

Inputted Rate = 10%

Time Period = 10 months

$\begin{array}{rcl}\mathrm{Interest}\mathrm{for}10\mathrm{months}& =& \mathrm{Sales}\mathrm{revenue}\times \mathrm{Inputed}\mathrm{rate}\times \mathrm{Time}\mathrm{period}\\ & =& \$660,000\times \frac{10}{100}\times \frac{10}{12}\\ & =& \$55,000\end{array}$