On May 1, 2013, AAA Corp. purchased parts from XYZ Corp. In payment for the $48,

Question

On May 1, 2013, AAA Corp. purchased parts from XYZ Corp. In payment for the $48,000 purchase, ABC issued a 1 year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%%. , (1) What entry will AAA make to record the May 1, 2013 purchase of the parts? , (2) What entry will AAA make to record the 1st installment payment on May 31, 2013?, (3) How much interest expense will ABC report in its income statement for its fiscal year ended 06/30/2013?

Explanation / Answer

1)

purchases a/c Debit 48000

To Note Payable Crredit 48000

2)

Installment = (48000 + 48000 * .12) / 12 = 4480

Note Payable Dr 4480

     To Bank/cash              Cr 4480

3)

Interest shown in income and expenditure account is 960 (i.e.480 * 2)

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