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Chapter 18: 10BE (page 1033)

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

Expert verified

Interest for 10 months is $ 55,000

Step by step solution

01

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.

02

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

Interestfor10months=Salesrevenue×Inputedrate×Timeperiod=$660,000×10100×1012=$55,000

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